• Keep BUY and SGD0.91 TP, 29% upside, c.5% FY24F yield. We continue to be positive on HRnetGroup, ahead of anticipated economic recovery in Singapore and China. Our economist forecasts Singapore’s 2024 GDP growth to accelerate while maintaining strong GDP growth of 5% for China. The unemployment rate has also remained stable in Nov 2023 from 3Q23. We like the stock due for its compelling valuation vis-à-vis growth as a beneficiary of economic recovery this year.

• Nov 2023’s unemployment rate remained low. Based on the Ministry of Manpower’s latest Monthly Unemployment Situation for Nov 2023, overall unemployment rates remained low at 2% (resident: 2.8%, citizen: 2.9%). This is stable from 3Q23’s 2% rate. Unemployed residents in Nov 2023 amounted to 67,600, of which 59,600 were citizens. Overall unemployment has remained stable at 1.8-2% this year, well below the 2013-2022 average of 2.4%. The overall unemployment rate of 2% was also consistent with 3Q23.

• Expecting better job demand in Singapore. Our economics desk estimates Singapore’s 2023 GDP growth at 1.5%, before accelerating to 3% in 2024 – driven by an improving external environment. More robust global demand should drive domestic industries’ recovery and, eventually, the demand for labour, which will lend support to our earnings outlook.

• China recovering economically; growth remains strong at 5%. Our economists see signs of continued economic recovery and has forecasted a 5% GDP growth for 2024. China’s 3Q23 GDP has already surprised market estimates with a 4.9% YoY growth. Furthermore, the country’s growth momentum has accelerated sequentially to 1.3% QoQ SA from +0.5% QoQ SA in 2Q23, supporting a recovery. This should translate into higher job demand in 2024 as well. HRNET’s North Asia segment contributed to 40% of 1H23’s gross earnings, of which China is a key contributor.

• Maintain BUY. As overall unemployment is stable, we make no changes to our estimates and TP. Our 2-year FY23F-25F earnings growth CAGR remains at 5%, as we are positive on a hiring recovery from next year onwards – this is on the back of accelerating economic growth. Our TP pegs the stock at +0.5SD of the historical mean forward P/E. We continue to like HRNET for its: i) Cash-generative ability, ii) strong net cash balance sheet of SGD0.24, iii) attractive dividend yield of c.5%, iv) undemanding valuation of c.11x forward P/E (at -1SD of its historical mean forward P/E), v) continued share buyback in support of EPS, and vi) as a beneficiary of the economic recovery going into FY24 – especially in Singapore and China.

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

• ESG. Based on HRNET’s 3.1 ESG score (at the country median), we apply a 0% ESG discount/premium to its intrinsic value to derive our TP.

Source: RHB Research - 26 Jan 2024