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HRnetGroup Ltd’s 2018 Earnings: A Record Year with Higher Dividend

HRnetGroup Ltd (SGX: CHZ) is a prominent recruitment agency with operations in 13 Asian cities, including Singapore. The company was listed on the Singapore stock exchange in July 2017.

On Friday, HRnetGroup announced its financial results for the full year ended 31 December 2018. Let’s look at the key highlights from the announcement here.

Financial highlights

HRnetGroup’s revenue for 2018 grew to a record high of S$428.5 million, up 9.3% from S$391.9 million seen in 2017. The increase was mainly due to 1) growth in its flexible staffing business in Singapore and Hong Kong; 2) growth in professional recruitment in North Asia and Singapore; and 3) contributions from three acquisitions during the year.

Gross profit in 2018 increased by 14.2% year-on-year to a new high of S$155.3 million, and this brought about a gross profit margin of 36.2%, up from 34.7% in 2017.

Correspondingly, the company’s profit attributable to shareholders climbed 16.6% to S$48.2 million. Net profit margin improved to 11.2% from 10.5% while diluted earnings per share grew to 4.76 Singapore cents from 4.56 Singapore cents.

In 2018, HRnetGroup fulfilled a total of 9,448 permanent placements, an increase of 15% year-on-year. Meanwhile, the monthly average number of contractor employees managed by the recruitment firm rose 8.4% to 12,112.

HRnetGroup’s balance sheet remains healthy. As of 31 December 2018, it had S$281.8 million in cash balance with no debt. In comparison, at end-2017, it had S$289.1 million in cash and zero debt. The company mentioned in its earnings presentation that its cash requirement stands at around S$166 million, and the bulk of it, at S$100 million, is for working capital purposes.

The company has a strong cash-generating ability. In 2018, operating cash flow surged 46.5% to S$51.6 million. With a capital expenditure of S$1.7 million, free cash flow for the year came in at S$49.9 million, up from S$34.3 million in 2017.

Well-covered dividend

HRnetGroup’s board has proposed a first and final dividend of 2.8 Singapore cents per share for 2018, up 21.7% from 2.3 Singapore cents dished out a year back. The latest dividend payment looks well-covered to me as it represents just around 57% of 2018’s free cash flow.

Looking ahead

Adeline Sim, the executive director of HRnetGroup, said:

“With the rising global uncertainties in the macro-environment, casting a gloomy outlook on the growth prospect of regional economies, we continue to build up the resilience of our business model to enable us to weather through business cycles. We believe the addition of new staffing units in Malaysia, Hong Kong and China, will provide a stronger counter-cyclical buffer if business environment softens. At the same time, we continue to strengthen our competency in the professional recruitment space, building specialization in niche industries, to position ourselves for growth, should the economies pick up.

With our conservative balance sheet management, balanced with entrepreneur spirit to innovate and explore new growth opportunities, HRnetGroup is all set to navigate the 2019, with aim to achieve growth in line with our track records in the past 10 years.”

The Foolish takeaway

HRnetGroup finished the year strongly with record high revenue, gross profit and net profit. Its balance sheet is also robust with plenty of cash to see it through any tough economic conditions. With the improved bottom-line, the yearly dividend has also improved. At HRnetGroup’s share price of S$0.80, it has a trailing price-to-earnings ratio of 16.8 and a trailing dividend yield of 3.5%.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. The Motley Fool Singapore has recommended shares of HRnetGroup Ltd. Motley Fool Singapore contributor Sudhan P doesn’t own shares in any companies mentioned.