Maybank Securities analyst Eric Ong has kept his “buy” call on HRnetGroup after the group announced that it was acquiring a 51% stake in FinTech startup Octomate for $676,500 from an unrelated third party.
The move will facilitate the integration of Octomate’s instant payment solution with HRnet’s Ease Works app which allows contractor employees to be paid instantly after the approval of their timesheets.
Octomate currently has over 3,000 daily active users with blue-chip customers such as Amazon, H&M and Hyundai Motor Group. There is a one-time implementation/activation fee charged to customers to go live, as well as recurring subscription fees by tier or volume of transactions, depending on its clients’ nature of business, Ong notes.
Following the acquisition, Octomate’s CEO and co-founder Zoey Tong will become the 37th business co-owner of the group.
“While there is no material impact on our earnings per share (EPS) forecasts, we think Octomate is in a sweet spot to extract potential synergies as it enables cross-selling to the group’s new and existing clients,” says Ong who has kept his target price of $1.07, based on an FY2023 P/E of 15x.
On HRnetGroup’s future prospects, the analyst sees the group’s professional recruitment business segment as set to benefit as Singapore goes all out to attract more highly skilled foreigners to strengthen its position as a global talent hub.
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From Jan 1, 2023, applicants for Singapore’s new work pass will need a monthly salary of at least $30,000, which is comparable to the top 5% of Singapore’s employment pass holders.
To this end, Ong says the higher remuneration packages should help HRnet offset slower placement volume growth amid the current uncertain economic outlook.
In his report dated Oct 10, Ong deems the faster-than-expected organic growth in existing markets, particularly in Singapore where its market dominance is perceived to leave limited headroom for further growth, as one of the upside factors in HRnetGroup’s favour.
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Another upside factor is HRnetGroup’s successful and swift execution of its mergers and acquisitions (M&A) strategy in acquiring accretive businesses.
Finally, the expansion of other fee-generating services like payroll processing and HR consulting that can augment its core services and customer ‘stickiness’ is another factor that’ll benefit the group.
Meanwhile, a slower-than-expected organic growth in existing markets as well as margin pressure from increased competition in its key markets, as well as execution missteps in its M&As are downside factors. Another downside factor identified by Ong is staff turnover among its key performers and customer relationship managers.
Shares in HRnetGroup closed 0.5 cent lower or 0.68% down at 73.5 cents on Oct 11.