HRnetGroup - Leading Asia-based Recruitment Firm

• HRnetGroup (SGX:CHZ) is one of the largest Asia Pacific-based recruitment companies outside Japan operating in 13 Asian cities and serving more than 3,000 clients across 23 industry segments.
• We are initiating coverage on HRnetGroup with a BUY and target price of S$0.99, pegged at 18x FY22E P/E. This implies a slight premium to global peers’ average, which is justifiable given its more superior ROE and a strong net cash position of S$332m (or 42% of its market capitalisation).
• At current level, HRnetGroup is still trading at an undemanding valuation of 9x (ex-cash) FY21E P/E.

Twin Engines of Complementary Businesses

• We like HRnetGroup’s synergistic and balanced business model that is supported by two complementary businesses. Its flexible staffing business provides a relatively stable and steady revenue stream during economic downturns, while the professional recruitment business generally performs well during periods of economic expansion.
• In our view, the provision of both services allows HRnetGroup to be resilient through economic cycles, while offering comprehensive recruitment solutions to its highly-diversified customer base (FY20: top ten customers were 22% of revenues).

Proxy to Improving Employment Outlook

• We see HRnetGroup as a good proxy for 54.5% of gross profit. We think North Asia could gradually become a bigger contributor going forward, as HRnetGroup builds on its presence there via the expansion of existing brands and potential M&As.

Cash-generative, Asset-light Business Model

• HRnetGroup’s business is 3x his/her payroll costs).

• Moreover, HRnetGroup's management is also ramping up its investments in technology such as digital staffing platform to further improve productivity, as well as deliver a better product and enhance the user experience of its clients.

Source: Maybank Kim Eng Research - 24 Jul 2021