The Motley Fool

2 Reasons Why I Believe HRnetGroup Ltd’s Strong Growth Can Continue

HRnetGroup Ltd (SGX: CHZ) has been growing at a consistent pace since its initial public offering (IPO) last year. The group continued its impressive track record of growth in its latest quarter, registering a 7.7% increase in revenue and a 17.8% improvement in profit after tax and minority interest.

Beyond these solid numbers, there are two reasons to believe the strong growth trend can continue.

Expanding its headcount while maintaining employee productivity

In the past 12 months, the total number of permanent employees increased by 13.0%. Of which, 80 were sales employees. These figures suggest that HRnetGroup is actively looking to grow its business.

More impressively, the group has managed to improve its sales staff efficiency while increasing headcount. Gross profit per sales employee increased by 4.0% due to the higher number of professional recruitments. In addition, the percentage of productive sales employees, which HRnetGroup defines as achieving a gross profit of more than three times their pay, increased by 3.2 percentage points to 71.6%.

The group implemented a co-ownership program last year after it went public to offer productive employees a stake in the company. The incentive program seems to be working well for now, with the percentage of productive employees increasing each quarter.

Growth in China and Hong Kong business

It is also encouraging to see that HRnetGroup’s North Asia business makes up a larger proportion of profit contribution. In the latest quarter, its North Asia business’ gross profit contribution increased from 38% to 43%. As such, the company is less reliant on its core Singapore business and reduces its concentration risk in Singapore.

Source: HRnetGroup Ltd 2018Q3 Earnings Presentation

In its latest quarter, gross profit from the North Asia segment was up to S$17.2 million, 31% higher than the corresponding period last year. With the company announcing more initiatives to grow its business in China such as professional recruitment business in new specialisations such as artificial intelligence (AI) and the setting up of flexible staffing business in China, we will likely continue to see strong growth in its China operations.

The Foolish Takeaway

HRnetGroup has enjoyed solid growth since it went public last year. With its business in China still in its high growth phase and the group constantly improving its employee efficiency, the future continues to looks bright. At the time of writing, HRnetGroup shares are trading at S$0.82 each, giving a price-to-book ratio of 2.5, a price-to-earnings multiple of 13.2 and a dividend yield of 2.8%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Jeremy Chia own shares in HRnetGroup Ltd. The Motley Fool Singapore has a recommendation on HRnetGroup Ltd.