HRnetGroup Ltd (SGX: CHZ) is the largest Asia-based recruitment agency in the Asia-Pacific region (excluding Japan). On Friday, on top of announcing its first-quarter results, the company revealed that it has a 7.85% stake in Hong Kong-listed Bamboos Health Care Holdings Ltd (HKG: 2293). What are some of the exciting aspects of Bamboos that HRnetGroup shareholders should know about?
Bamboos, founded in 2009, provides healthcare staffing solution services to its clients in Hong Kong. Some of the services it offers include ward relief for hospitals and nursing homes, 24-hour private nursing service, and out-patient escorting services. The company has clients such as hospitals, social service organisations, clinics, pharmaceutical companies, and individuals.
As of 31 December 2018, the company had over 20,000 healthcare individuals registered with it. Having a large pool of talent could allow Bamboos to provide staff to its clients on an immediate basis, especially during critical times such as flu outbreaks, emergencies, and seasonal peaks.
Show me the money
For the year ended 30 June 2018 (FY2018), revenue rose 30.2% year-on-year to HK$81.4 million while net profit grew 29.4% to HK$42.2 million. One of the reasons for the increase in revenue was due to an upward price adjustment for its healthcare personnel in August 2017. This shows that Bamboos has pricing power, an attractive factor in any investment.
Over the longer term, the company has done exceptionally well too. The following shows critical figures from Bamboos’ income statement in its last five financial years.
|FY2018||FY2017||FY2016||FY2015||FY2014||Compounded Annual Growth Rate|
Source: S&P Global Market Intelligence
It’s splendid that Bamboos has grown its revenue, gross profit, and net profit consistently every year. Revenue grew from HK$36.5 million in FY2014 to HK$81.4 million in FY2018. Likewise, net profit increased from HK$8.7 million to HK$42.2 million during the same time frame. The strong growth in all the metrics above could point to sustainable competitive advantages at the company.
Bamboos has been able to grow its top-line and bottom-line with no or negligible borrowings over the past five years. In particular, as of 30 June 2018, it had HK$96.8 million in cash and cash equivalents with zero debt, an increase from the cash position of HK$63.1 million (without any debt) at the end of June 2017.
Not surprisingly, the company’s free cash flow swelled from HK$16.1 million in FY2014 to HK$22.7 million in FY2018. Free cash flow is cash that Bamboos can use to pay out dividends to shareholders, buy back shares, or make acquisitions, among other things.
The road ahead
Just like Singapore, Hong Kong is facing an ageing population. According to the Hong Kong government’s projections, the number of seniors is projected to increase rapidly. The Commissioner for Census and Statistics said:
“Population ageing is expected to continue. Excluding foreign domestic helpers, the proportion of elderly persons aged 65 and over is projected to rise markedly, from 15 per cent in 2014 to 36 per cent in 2064. Population ageing is expected to be most rapid in the coming 20 years with the proportion of over 65s reaching 23 per cent in 2024 and 30 per cent in 2034. This is mainly attributable to the post-war baby boomers entering old age. Towards the end of the projection period, the proportion of the elderly will stabilise as the baby boomers gradually pass away. Meanwhile, the proportion of the population aged under 15 is projected to decrease gradually from 12 per cent in 2014 to nine per cent in 2064.”
Furthermore, as mentioned in Bamboos’ FY2018 annual report, Hong Kong’s various ongoing hospital development plans and escalating demand for healthcare staffing services should bode well for the company in the long term.
It’s a wrap
With a strong historical financial track record and sustainable tailwinds, it is not surprising to understand why HRnetGroup took a stake in Bamboos. There could also be synergies between HRnetGroup and Bamboos since both are in the same areas of business. In the past two years, the healthcare life sciences sector contributed to 11% of HRnetGroup’s revenue.
At its share price of HK$1.40, Bamboos is selling at a price-to-earnings (PE) ratio of 13 and a dividend yield of 1.8%. Meanwhile, HRnetGroup is going at a PE ratio of 14 and a dividend yield of 3.8% at its share price of S$0.73.
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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 owns shares in HRnetGroup Ltd.