HRnetGroup started at Add by CGS-CIMB as only listed proxy to Singapore, China labor markets

Singapore two-dollar bills

CGS-CIMB started HRnetGroup at Add with S$1.10 target price, calling it “the best candidate in town” as the only listed proxy to labor markets in Singapore and China.

“We like its asset-light and fairly-defensive business model, with the twin earnings growth engines of professional recruitment and flexible staffing,” CGS-CIMB said in a note dated Tuesday.

“In our view, its professional recruitment segment offers leverage to economic upturn, while its flexible staffing business provides a defensive edge,” it added.

It noted that HRnetGroup is a leading recruitment agency in Asia ex-Japan, with a 20 percent market share in Singapore, based on 2015 revenue, as well as a growing presence in other Asian cities.

Despite the dominant position in Singapore, CGS-CIMB said it still saw opportunities in the city-state for the company’s flexible staffing.

It forecast three-year net profit compound annual growth rate (CAGR) of 14.6 percent over fiscal 2017-20 after the recent acquisitions of REForce in China and Career Personnel in Hong Kong and overseas expansion.

While there may be fears that the sector could face digital disruption from platforms such as LinkedIn and AI-based agencies, recruitment services won’t be easily displaced, CGS-CIMB said.

“We believe recruitment agencies like HRnetGroup are still relevant, given their intermediary role in negotiation, candidate screening and proven success in job-matching,” the note said. “The group also embraces technological innovation, and sees its recent investment in Glints Intern as a testbed for AI tool development.”

The stock trades at 15.1 times 2019 price-to-earnings at discounts of nearly 50 percent and 20 percent to peers’ averages in North Asia and globally, respectively, the note said, adding it expected the discount to narrow as HRnetGroup increases its North Asia exposure.

The stock also offers a 3 percent fiscal 2018 dividend yield on a 50 percent dividend payout ratio, it noted.

Shares of HRnetGroup ended Wednesday up 1.15 percent at S$0.88.

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