Maybank Research, PhillipCapital and RHB Bank Singapore have lowered their target prices for HRnetGroup to 80 cents, 88 cents and 91 cents, respectively, down from 85 cents, 98 cents and $1 previously. Maybank has kept its “hold” call, while PhillipCapital and RHB have maintained “buy” on the staffing company.

In his report dated Aug 13, Maybank analyst Eric Ong says he is waiting for “dark clouds” over the challenging job market to pass after HRnetGroup recorded a soft 1HFY2023 ended June 30 core performance with its patmi down 18.3% y-o-y to $28.3 million.

The company’s two biggest markets, Singapore and North Asia, took the brunt of the faltering economic recovery as seen in the sharp slowdown in its professional recruitment segment, according to Ong. Revenue for the segment slumped 34% y-o-y to $34.3 million in 1HFY2023 against the backdrop of strong economic headwinds that affected hiring sentiment across most sectors, especially in the mid-to-senior level.

For the period, HRnetGroup’s gross profit margin stood at 24.3% compared to 29.3% in 1HFY2022 due to the shift in sales mix amid a tough external environment. The proportion of gross profit derived from flexible staffing surpassed that of professional recruitment in 1HFY2023 for the first time and formed 49.8% and 47.9% of gross profit, respectively, compared 41.5% and 56.6% in the first half of last year.

Ong believes Singapore holds the key to the company seeing any recovery in FY2024. “As Singapore is the group’s largest market contributing 66.8% of turnover in 1HFY2023, management is focusing on volume-based but lower margin hiring projects for some of its key clients and has even initiated preferential fee structures for those that hired displaced talent.” he says.

Compared to its interim dividend per share (DPS) of 2.13 cents in 1HFY2023, HRnetGroup has declared an interim DPS of $1.87 cents for the six months just passed, or a payout ratio of 62%.

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In view of lower volumes and pricing assumptions given current macroeconomic uncertainties, the Maybank analyst has adjusted his FY2023 to FY2024 earnings per share (EPS) estimates by 2% to 9%. Although his target price is still based on a 15x FY2024 price-to-earnings (P/E) ratio, it has been lowered from 85 cents to 80 cents.

Ong adds that HRnetGroup’s balance sheet remains robust with a net cash position of $262 million or some 35% of its market capitalisation, supported by its unique co-ownership and asset-light business model. “Despite the lacklustre 1HFY2023 results, annualised dividend yield is decent at around 5%, in our view. We think the share price should be well supported by its existing share-buyback program and undemanding valuation of about 8.4x ex-cash P/E,” he says.

Meanwhile, Paul Chew of PhillipCapital has also cut his FY2023 earnings forecast by 11% to an adjusted patmi of $56 million with lower professional recruitment volume and price assumptions. Nonetheless, he has maintained his “buy” call and believes that even with a lower target price of 88 cents, HRnetGroup would still be trading at a “huge discount” to global peers.

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Chew believes hiring activities will trend sideways in 2H2023 after the “stellar growth” shown in 2022, as they are propped up by technology and pandemic-related placements. Relative to its peers, HRnetGroup sees upside from its net cash position while it enjoys economies of scale from its nearly 700 recruitment consultants across 16 cities.

While the outlook for both business and candidate confidence in professional recruitment remains weak, negatively impacting demand and supply, the PhillipCapital analyst is positive on flexible staffing to provide a stable platform for HRnetGroup.

He expects flexible staffing, which remained resilient in 1HFY2023 despite the absence of pandemic-related hiring, to remain the near-term growth driver as corporates pivot towards contingent workers in an uncertain macro backdrop. Chew notes that sectors supporting the segment during the period were banking, luxury retail, consumer and logistics.

He adds that another growth pillar of HRnetGroup’s flexible staffing segment is from its expansion overseas to Taipei, Hong Kong and Jakarta, where its track record, technology and capital would be advantageous.

The strength of the company’s ownership model was also reflected by the flexibility to reduce employee expenses during the period. In line with the weaker revenues, employee cost in 1HFY2023 was down 19% y-o-y, from lower bonus payout and headcount reduction of 83, notes Chew.

Meanwhile, he points out that from the $30 million share buyback plan announced in June 2022, there is still a balance of $16.6 million to be completed.

RHB's Alfie Yeo says that his reduced target price of 91 cents after cutting his earnings forcasts for FY2023 to FY2025 by 9% to 11% still offers a 22% upside and an FY2023 yield of around 5%. "Nonetheless, we stay positive on the stock in anticipation of accelerating GDP going forward and compelling valuations," says Yeo.

As at 3.55pm, shares in HRnetGroup were trading 0.5% or 0.67% down at 74 cents.

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Maybank, PhillipCap and RHB lower TPs on HRnetGroup as recruitment disappointed in 1HFY2023

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