Solid Results; Maintain BUY

• HRnetGroup (SGX:CHZ)'s 2H21 PATMI of S$29.6mm (+14.2% y-o-y) beat MIBG and the street’s estimates on better operating performance for both Flexible Staffing (FS) and Professional Recruitment (PR) segments across key markets.
• HRnetGroup declared a final dividend of S$0.03, bringing total payout to S$0.04 (including special dividend of S$0.01).

All Geographies See Double-digit Growth

• HRnetGroup's revenue rose 41.6% y-o-y to S$315.4m in 2H21, fuelled by an improving labour market especially Healthcare Life Science (Pharma and Medical). This sector accounts for 26% of FY21 topline (14% in FY20), while overall gross profit margin was steady at 29.6% (vs FY20: 29.9%) with the Professional Recruitment (PR) and Flexible Staffing (FS) business revenue mix of 16.0% and 83.4% on par with FY20’s 16.8%/82.6%.
• Notably, all key geographies (Singapore: +31.7%, North Asia: +43.2%, Rest of Asia: +103.3%) experienced strong double-digit percentage turnover growth.

Positive Hiring Sentiment Despite Rising Business Costs

• On a full year segmental basis, Flexible Staffing (FS) turnover rose 37.8% y-o-y to S$492.6m as the number of monthly contractors rose to a record high of 19,280 in Dec 2021 (+34.4% y-o-y). Professional Recruitment (PR) revenue also grew by 30.6% to S$94.8m as the group placed 7,794 (+11% y-o-y) candidates, chiefly in senior and niche positions that fetched higher salaries.
• While the employment outlook remains positive, we do not think this growth rate is repeatable in FY22 amid macroeconomic uncertainty and rising business costs.

Accretive M&A Could be a Catalyst

• HRnetGroup's management expects business pegged at a lower P/E of 16x (from 18x previously) due to slower earnings growth going forward. However, this is still a slight premium to peers’ 15x for its better ROE and balance sheet strength.

Source: Maybank Research - 26 Feb 2022