• Maintain BUY and SGD0.84 TP, 21% upside and c.5% FY25F yield. We continue to like HRnetGroup, as we anticipate growth on the back of economic recovery in Singapore and China even after trimming our estimates. We see growth driven by an improving economy. RHB Economics forecasts Singapore’s 2024 GDP growth to accelerate while maintaining strong GDP growth of 5% for China. Valuation is compelling, with forward P/E at -0.5SD of its historical mean.

• 1Q24’s unemployment rate increased. According to the Ministry of Manpower’s (MoM) latest Monthly Unemployment Situation for 1Q24, overall unemployment rates in March, inched up to 2.1% (resident: 3%, citizen: 3.1%). The citizen unemployment rate of 3.1% was higher than 3Q23’s 3%. The number of retrenchments declined to 3,030 for the quarter from a high of 4,110 in 3Q23 since 1Q23. Job vacancies to unemployed persons decreased in 1Q24 to 1.56 from 2.25 in 1Q23. The average monthly recruitment rate, which has averaged at 2.3% in the past four quarters, declined to 2.1% in 4Q23.

• Expecting weaker job demand in Singapore. The latest MoM data showed continued expansion of the labour market in 1Q24, albeit at a slower pace. While retrenchments declined, unemployment rate increased. The employment change for the quarter was +4,700, lower than +7,500 for 4Q23 and +33,000 for 1Q23. Nonetheless, RHB Economics estimates Singapore’s 2024 GDP growth at 2.5%, accelerating from 2023 – driven by an improving external environment. For China, RHB Economics sees signs of continued economic recovery and has forecasted a 5% GDP growth for 2024. This should support job demand in 2024 as well.

• Trim FY24F-26F earnings by 3% each. Based on 1Q24’s labour situation, we see a less robust outlook going forward. As such, we lower our growth rates for the number of placements and contractors from 5% to 2%. We also trim our FY24F-26F earnings by 3% each to reflect a slower-than-expected growth outlook. Despite cutting our earnings, our TP remains at SGD0.84 as we roll over our earnings base from FY24F to a blended FY24F-25F.

• Maintain BUY. Despite trimming our estimates, we continue to like HRNET for its: i) Cash-generative ability, ii) strong net cash balance sheet, iii) attractive dividend yield of c.5%, iv) undemanding valuation of c.11x forward P/E (at -0.5SD of its historical mean forward P/E), v) continued share buyback in support of EPS, and vi) advantage 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. Based on HRNET’s 3.0 ESG score (below the country median of 3.1), we apply a 2% ESG discount to its intrinsic value to derive our TP.

Source: RHB Research - 28 Jun 2024