• Keep BUY and SGD1.00 TP, 24% upside and 5% yield. We continue to like HRnetGroup, as it is poised for a 2H23 recovery despite near-term labour market headwinds. Trading at 11x FY23F P/E or -0.5SD from its historical mean of 13x, the stock has strong cash flow-generating ability, a net cash balance sheet, and attractive dividend yield. We believe its diversified exposure across multiple Asian economies and industries can help the group weather employment volatilities in specific markets. Our TP is still based on 14x FY23F P/E.

• A robust 2022 labour market. The Ministry of Manpower’s (MOM) labour market report stated that 2022’s average unemployment rate dropped to 2.1% from 2.7% YoY. The rate remains below pre-pandemic levels, while the resident long-term unemployment rate also fell below the pre-COVID- 19 average. Total employment increased to 3.6m in 2022 – above pre- pandemic levels. Although retrenchments more than doubled to 2,990 in 4Q22 from 3Q22’s 1,300 – driven by business restructuring – this is still at sustainably low levels when compared to the pre-COVID-19 years. The wholesale trade, electronics manufacturing, and information & communications sectors contributed 63% of 4Q22’s resident retrenchments. Of those retrenched, 73.1% found new employment within six months – the highest percentage since 2Q15. The job vacancies-to- unemployed person ratio rose to 2.33x – above the 1.4x pre-pandemic high.

• Softness expected, but hiring to recover. With the anticipated global economic slowdown, we expect some labour market softness in 1H22. In the near term, our economists expect the unemployment rate to rise to 2.4% – in view of global headwinds – before recovering to 2% in 2H23. The 1H23 softness was factored into our forecasts. However, MOM polls show hiring sentiment remains positive, with most firms planning to hire staff in the coming months. As HRNET is exposed to multi-industries, it will also benefit from the return of regional travel in the services and hospitality sectors. The post COVID-19 reopening of the global economies, especially China, will also help mitigate the impact of slower hiring in other markets, in our view.

• ESG. Utilising our in-house proprietary methodology, we derive an ESG score of 3.0 for HRNET. We ascribe a 0% ESG discount/premium to our TP, as the group’s ESG score is on par with our country median.

• Key risk: Slower-than-expected recovery in the key labour markets of Singapore, China, and Taiwan.

Source: RHB Research - 23 Mar 2023