SINGAPORE (Mar 2): RHB is downgrading its recommendation on HRnetGroup to “neutral” from “buy” with a lowered target price of 61 cents from 81 cents previously, as the headwinds are further intensified by effects of the novel coronavirus (Covid-19).

This came in despite the group on Feb 27 recording a 7.1% increase in its FY19 earnings to $51.6 million, compared to $48.2 million in FY18. Revenue for the full year ended December 2019 was however 1.3% lower y-o-y at $423.1 million.

In a Monday report, analyst Jarick Seet says, “In our previous report, we highlighted that we expect Singapore hiring to be weak due to the tough macroeconomic environment. However, with the impact of the Covid-19 outbreak, it should see further headwinds.”

Unfortunately, the group’s key markets – Singapore and China – are expected to see weak hiring. The group’s management has highlighted that the Covid-19 outbreak had a significant impact on regional economic growth, especially Singapore and China, which accounts for 91% of the group’s gross profit.

Management has revealed uncertainties in the group’s business environment affecting operations in this quarter, in terms of its clients’ decisions on hiring and start-work dates of selected candidates – as companies take time to reorganise logistics, processes and the flow of their human capital.

This, in turn, may impact the group’s revenue recognition from cases where candidates have already signed the letter of appointment, but have not begun working at their place of employment yet.

On the back of this, Seet expects the group’s performance in 1Q20 and 2Q20 to be dampened

Meanwhile, HRnetGroup declared a final dividend of 2.8 cents per share. Despite headwinds, Seet expects such dividends to be stable, even for FY20, with the group’s net cash balance sheet and strong cash flow generation.

As at 3.02pm, shares in HRNetGroup are trading at 56 cents, giving it an FY20 price-to-book ratio of 1.6 times with a dividend yield of 4.5%.