• We expect higher salary budgets and strong hiring sentiment in HRnetGroup’s key markets of Singapore and North Asia to drive FY21F-22F’s gross profits.
• HRnet Group's share price has returned 42.9%, outperforming global recruitment companies’/MSCI World Index average returns of 28.3%/18.5% year-to-date.
• HRnetGroup is trading at an attractive 11.8x FY22F P/E (~45% discount to global peers) and ~4% dividend yield.

Higher Wage Growth and Volumes to Drive HRnetGroup's FY21F-22F Gross Profits

• Employers in HRnetGroup (SGX:CHZ)’s key markets of Singapore and North Asia are expected to raise their salary budgets in FY21F-22F on the back of
  1. improving hiring sentiments as economies gradually recover,
  2. growing pressure on employers to raise salaries amid rising employee attrition rates, and
  3. increasing challenges to retain and attract talent, according to a survey by Willis Tower Watson on 30 Aug 2021.
• Potential new hires in healthcare life sciences, banking and financial services and manufacturing can expect a salary bump of up to 14-15%; and up to 20% in technology, according to Michael Page’s 2021 Salary Guide. With a ~62% exposure to those sectors as of 1H21, we expect tailwinds from
  1. higher compensation packages to drive HRnetGroup’s professional recruitment business (~100% GPM), and
  2. shortage of foreign labour from ongoing border restrictions to drive volumes for its flexible staffing business for FY21F-22F.

Keep Your Eyes on M-o-m’s 2Q21 Labour Market Report

• The key date to watch out for is 15 Sep 21 when the Ministry of Manpower (MOM) publishes its ‘Labour Market Report Second Quarter 2021’ report Phase 2 Heightened Alert, we do not expect this to dampen hiring sentiment as demonstrated by HRnetGroup’s strong set of 1H21 results.

Global Recruitment Companies Have Performed Well Year-to-date

• Global recruitment companies have posted average returns of 28.3%, outperforming the MSCI World Index at 18.5%, between 4 Jan and 3 Sep 21, according to our estimates. HRnetGroup has returned 42.9% versus Asian/Non-Asian recruitment companies at 23.9%/31.9% over the same period.
• Going forward, we expect continued recovery across economies globally, leading to more job creation and stronger hiring sentiment to further re-rate shares of global recruitment companies, in our view.

Reiterate ADD on HRnetGroup With Unchanged Target Price

• We reiterate our ADD call on HRnetGroup with a target pace of labour market recovery.

• A potential re-rating catalyst is increased job creation.
• A key downside risk is deteriorating macro conditions dampening hiring sentiment.
• Continue to read the report attached below for detailed analysis.

Source: CGS-CIMB Research - 6 Sep 2021