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Maybank Securities and PhillipCapital mixed on HRnet, after cautious employment conditions of FY2023

Nicole Lim
Nicole Lim • 3 min read
Maybank Securities and PhillipCapital mixed on HRnet, after cautious employment conditions of FY2023
Analysts are mixed on HRnet's prospects following the company’s FY2023 results.
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Analysts from Maybank Securities and PhillipCapital are mixed on HRnetGroup (HRnet) following the company’s FY2023 results, which saw its core patmi for the 2HFY2023 come in at $28 million.

Maybank’s Eric Ong has kept his “hold” call with an unchanged target price of 80 cents, as he says that the group has been resilient compared to its peers considering the economic conditions of 2023. 

On the other hand, Paul Chew of PhillipCapital is “expecting growth to creep up”, and has therefore lowered his target price to 85 cents from 88 cents previously, while maintaining his “buy” call.

Ong highlights that the employment market remains cautious. HRnet’s professional recruitment (PR) revenue fell 30% y-o-y for the 2HFY2023 to $31 million amid hiring freezes and cautious sentiment across key markets. 

For the full year, the group placed 5,774 (-19% y-o-y) candidates, while GP per placement also declined 16% to $11,300. Flexible staffing (FS) turnover was flat at $250 million, although GP margin dipped by 0.4 percentage points (ppts) to 13.7% in 2HFY2023 along with the rolling back of the Covid-related healthcare business in Singapore. 

The full year’s average contractor volume was down 7% to 16,141, but GP/average contractor ticked up by 2%.

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Ong notes that HRnet is experiencing a shift in its revenue mix towards flexible staffing, as the revenue proportion of FS rose to 88% in FY2023, up from 83.4% in FY2022. 

“We note that Hong Kong, Jakarta and Taipei continued to register FS growth but this was offset by reduced demand elsewhere, while its Mainland China PR business bore the brunt of the slowdown in economic activity,” says Ong. 

Meanwhile, HRnet’s balance sheet remains “rock solid” with net cash of $312 million, which Ong says allows the group to fund growth in FS and its other businesses with annual recurring revenue. These include its payrolling services YesPay!, workforce management solutions at Octomate and Octomate Staffing. 

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Ong says that HRnet is also looking at leveraging its cash position to take market share from financially weaker competitors and pursue investments and partners in HR-related outsourcing. 

As such, he keeps his “hold” call with an unchanged target price of 80 cents, still based on 15 times FY2024 P/E.

Likewise, Chew from PhillipCapital highlights that FS is HRnet’s key performer, while its PR segment is still its weak spot, with weaker-than-expected results and placements that have been the “lowest since listing”. 

While hiring in technology roles from start-ups to semiconductors has been a growth vertical for HRnet, the pace of hiring in this segment has slowed significantly, says Chew. He adds that growth will now come from capturing a larger share of customer budgets. 

In addition, general hiring conditions are weak, particularly in China, says the analyst.

With more “tepid growth” on the horizon, Chew is reducing his valuation metric to 11 times P/E ex-cash FY2024, a change from the 12 times previously. 

“We lowered our FY2024 earnings by 11% to $57 million,” says Chew. “Target price lowered from 88 cents to 85 cents. It remains at a huge discount to global peers trading at an average P/E of 19 times.”

Shares in HRnet Group closed flat at 73 cents on Feb 26.

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