• Singapore’s labour market continued on its recovery mode in 1Q21: unemployment rate at 4% (-0.5% points y-o-y); retrenchments down 28% y-o-y.
• HRnetGroup (SGX:CHZ) has at least ~51% revenue exposure to sectors that were hiring.
• We reiterate our ADD call on HRnetGroup with a target price of S$0.82, as labour markets continue to strengthen, leading to more job creation and hiring activities.

Continued Recovery for Singapore’s Labour Market in 1Q21

• We provide a follow up to our previous note HRnetGroup - CGS-CIMB Research 2021-06-08: Hiring Season Around The Corner with Singapore (55% of FY20 gross profit) reporting a positive set of labour market data, in our view, in its “Labour Market Report First Quarter 2021” released by the Ministry of Manpower on 17 Jun 2021.
  • Resident unemployment rates continued to improve to 4% (-0.5% points y-o-y) and the change in total employment turned positive at +12,200 (1Q20: -25,800) for the first time after four consecutive quarters of decline, supported by resident employment growth in 1Q21.
  • Total permanent employee retrenchments also declined 28% y-o-y to 2,190 in 1Q21 (1Q20: 3,040).
• We think that permanent placement volumes (~100% GPM) could be at a turning point, backed by a strengthening labour market supporting margin expansion for FY21F.

More Jobs in the Market; Recruitment Levels Continue to Rise

• In 1Q21, the ratio of job vacancies to unemployed persons grew strongly to 0.96 (4Q20: 0.75; 1Q20: 0.66), which implies that there is almost one job vacancy for every unemployed person in Singapore. Similarly, recruitment rates continue to strengthen to 1.9% (4Q20: 1.7%; 1Q20: 2.0%).
• In our view, we think to drive earnings growth.

Large Exposure to Sectors Leading Employment Growth

• Sectors that led total employment growth for Singapore in 1Q21 were
  1. health and social services,
  2. public administration and education,
  3. food and beverage,
  4. administrative and support services,
  5. information and communications, and
  6. professional services.
• We estimate that HRnetGroup has a total revenue exposure of at least ~51% to these sectors which will continue to be a beneficiary for FY21F, in our view.

Reiterate ADD Call on HRnetGroup With An Unchanged Target Price of S$0.82

• We reiterate our ADD call on HRnetGroup with a target price of S$0.82, based on 14.0x FY22F P/E (5-year historical mean).

• We like HRnetGroup as we believe that the company is a key downside risk is deteriorating macro conditions dampening hiring sentiment.

Source: CGS-CIMB Research - 22 Jun 2021