HRnetGroup - DBS Research 2023-06-28: Labour Market Loses Momentum Amid Economic Headwinds

• We expect softness in Singapore’s and China’s economies to flow to the labour market. This translates to lower placements, a key revenue driver for HRnetGroup (SGX:CHZ).

A sputtering recovery in China is affecting business confidence and hiring sentiment.

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• In general, China’s economic recovery came in below the market’s expectations and the growth reflected in the figures are largely a result of base effects and to a certain extent pent up demand. Confidence in the Chinese economy is weak, making it more challenging for recruitment firms such as HRnetGroup to build business pipelines.
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Easing labour market in Singapore could cool demand for job placements on the back of a cloudy outlook.

• Though the Singapore labour market continued to expand with total employment increasing in the sixth consecutive quarter, it may continue to lose steam due to a weaker and more uncertain macroeconomic environment. The quarterly changes in employment have also eased from 83,400 in 3Q22 to 38,600 in 1Q23, albeit still positive in the last six quarters.
• Similarly, job vacancies are still elevated at 97,400 in 1Q23 compared to pre-COVID level of 54,700 in 1Q19. However, that fell from the high in 2Q22, pointing to a cooling labour market.
• Our economist has lowered Singapore’s full year GDP forecast from 2.2% to 1.7% on a tough economic climate and we are of the view that job placement demands could start to come down on macroeconomic uncertainties, continued inflationary pressures, and rising risks of a recession.

Downgrade to HOLD with lower target price S$0.86.

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Andy SIM CFA DBS Group Research | Singapore Research Team DBS Research | https://www.dbs.com/insightsdirect/ 2023-06-28 SGinvestors.io

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