HRnetGroup Limited – Hire returns July 16, 2021 444

PSR Recommendation: BUY Status: Initiation
Target Price: 1.000
  • One of the largest recruitment agencies in Asia-Pac ex-Japan with an asset-light, net-cash (S$332mn) and high-return (FY21e ex-cash ROE of 152%) business.
  • Economic recovery to revive employment in key service sectors. Higher contract volumes and rates expected for both permanent recruitment (PR) and flexible staffing (FS) solutions.
  • Trades at 16.2x P/E against peer average of 24.4x, even though it is the most profitable employment agency in town. After net cash of S$332mn, it trades at ex-cash P/Es of 9.2x/8.9x on FY21e/22e EPS. We initiate coverage with BUY and a TP of S$1.00, set at 14x FY21e ex-cash P/E.

Company Background

Listed on the main board of the SGX on 16 June 2017, HRnetGroup is the largest recruitment agency in Asia, ex-Japan. It has over 900 consultants in 13 Asian cities. Singapore is its stronghold, contributing 54.5% to its FY20 gross profit. PR generated 56% of its FY20 gross profit and FS, 43%. Other services include payroll processing and outsourcing of recruitment processes.


Investment Merits                                                  

  1. Most profitable of them all. As a human-resource business, its operations do not require much PPE. Its 152% ex-cash ROE can be attributed to strong income generation built on scale and reputable brands, led by an experienced board and management team. According to Frost & Sullivan, HRnet is the largest employment agency in Singapore with a 20.5% market share based on 2015 revenue. In a recent ACRA compilation, HRnet remained the largest and most profitable recruitment service player in Singapore.


  1. High barriers to entry for FS and scale barriers for PR. Complementing each other, PR performs well during economic expansion while FS protects HRnet during downturns. Creating scale in both trades is not easy. FS requires a lot of liquid capital. Contract employees are frequently paid upfront before clients reimburse recruitment agencies. A strong balance sheet is therefore required to enter and grow this business. On the other hand, PR faces high barriers to scale. To increase volume, PR firms need to be able to manage and train batches of headhunters effectively. It took HRnet years to find a golden methodology for its PR business.


  1. Turnaround in hiring. In 4Q20 and 1Q21, 18,700 and 17,600 new jobs were created in Singapore, following renewed hiring by the F&B, community, social and personal service industries. HRnet’s PR and FS volumes and rates increased, driven by urgent market needs to fill positions left vacant during the pandemic. We expect FY21e bottom line to improve 1.9% YoY, after accounting for easing Covid-19 government grants.


  1. Cash-rich and cheap. HRnet is trading at 16.2x FY21e P/E, significantly lower than its peer average of 24.4x. Stripping out net cash of S$332.2mn which is equivalent to 43% of its market cap, it trades at ex-cash P/Es of 9.2x/8.9x on FY21e/22e EPS. A strong cash hoard positions HRnet for any earnings-accretive North Asian opportunities that may come its way.


We initiate coverage with a BUY rating. Our target price of S$1.00 is set at 14x FY21e ex-cash P/E (net of interest income after tax), given that HRnet has been generating superior ROEs than most regional and global recruitment peers. Historical high of HRnet’s ex-cash P/E is c.14x.



HRnet has two main businesses: PR, which formed 17% of its FY20 revenue and FS, which formed 82%. Other services include payroll processing and outsourcing of recruitment processes (1%). HRnet has clients spanning industries such as financial institutions, information technology, retail and consumer, manufacturing and government. Its top 10 and 5 clients contributed 22.0% and 14.8% to its FY20 revenue respectively.


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