• FY22 revenue met expectations but PATMI was below (at 90% of our FY22 forecast). The loss of COVID-related staffing revenue and the lockdown in China affected 2H22 margins and earnings.
• Professional recruitment declined 12% YoY to S$44.8mn. Placement volume was down 15% YoY with pricing up 5%. Flexible revenue dropped a more modest 5% YoY, led by a 6% fall in volume. Margins suffered from a 9% decline in gross profit per contractor.
• We expect a softer 1H23 as economic conditions soften and hiring decisions to get delayed. Recovery in 2H23 will come from the re-opening and normalization of activities in China. We lowered our FY23e PATMI forecast by 6%. Our BUY recommendation is maintained but we have lowered our target price to S$0.98 (prev. S$1.18), 12x PE FY23e ex-cash.

The Positive

+ Transitioning well from COVID staffing needs. Revenue from Covid-related staffing was a drag on growth. For instance, in FY21, the average monthly number of contractors jumped 36% to 16.92k. It managed to still grow by 2% in FY22, and remains 45% above pre-pandemic levels. Margins from such staffing needs were higher due to the urgency in demand.

The Negative

– Professional recruitment softer in Singapore and China. 2H22 experienced a major 15% fall in placement volume. The weakest countries were Singapore and China. Demand has moderated in Singapore as confidence in the macro environment has waned. China’s lockdown created much uncertainty in hiring decisions. Strength was from Taiwan and Hong Kong.