by winston » Wed Jul 10, 2019 2:30 pm
not vested
HRnetgroup Ltd (SGX: CHZ)
The recruitment company’s stock has fallen from its recent high of S$0.90 to S$0.69.
The market seems to have reacted extremely harshly to the group’s poor first-quarter showing, where it recorded a 2.8% drop in both revenue and gross profit.
However, I feel that the steep fall in price has created a perfect buying opportunity for a company that boasts a rock-solid balance sheet and a long track record of growing its business.
HRnetgroup has a net cash position of S$242 million and has been a healthy generator of cash from operations.
And despite the slight fall in revenue, the group still generated a healthy gross profit of S$35.4 million in the first quarter of 2019. Its net profit to shareholders was S$10.4 million after stripping away one-off revaluation gains and government subsidies. Its revenue has also compounded at an annual clip of 9.0% in the last 10 years.
As with other recruitment firms, HRnetgroup’s business slowed in the last quarter due to the harsh economic environment arising from geopolitical uncertainties, which saw many companies holding back their expansion plans.
However, the long-term prospects of HRnetgroup still remain firmly on course. Despite the near-term setback, the group has kept its foot on the pedal, setting up offices at important regional cities in a bid to expand its business into geographical markets.
North Asia, in particular, has much larger addressable market sizes than Singapore and will be a long-term growth driver for the company.
At its current share price of S$0.69 per share, HRnetgroup Ltd has a low price-to-earnings ratio of 13.6.
Cash alone makes up around 35% of its entire market capitalisation. That gives it an enterprise value of S$383.2 million, which, in turn, translates to an EV-to-EBITDA multiple of just 5.4.
For a company with a long track record of growth, a healthy cash position, and a growing addressable market, its shares at current prices look like a sweet deal to me.
Source: Motley Fool
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