HRnetGroup

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#1
Recruitment agency HRnetGroup which runs Recruit Express and HRnet One has filed its preliminary IPO prospectus.

https://eservices.mas.gov.sg/opera/Publi...e560ccc05b


1) The gem of the group is  Recruit Express, where its clients are large companies seeking (project-based, lower wages, and/or lower-skilled) contract employees. Although the revenue from this business is based on a cost-plus-fee model (cost being the wage of the contract employee), it manages about 10,000 contract employees at any one time.

2) Because Recruit Express 'employs' so many lower wage workers, it received government incentives of $11.1m in FY16; in the form of Wage Credit Scheme, Special Employment Credit Scheme, and Temporary Employment Credit Scheme. This is about 23% of $48m controlling and non-controlling owners net profit in FY16. 

3) Although the company is highly profitable, its net assets has been decreasing from $126m in FY14 to $84m in FY16. This is due to the very large dividends it has been paying out; $85m in FY16, $52m in FY15, and $21m in FY14. Since the majority owners (Sim family) couldn't have planned, prepared and launched an IPO in a matter of months, why were they emptying the coffers before they selling shares of the company? 

4) Given the increasing probability of long-term anemic growth in Singapore (where about 75% of their revenue is derived), they probably see their business (and its valuation) peaking. This may explain one of their stated objective of the IPO for the purpose of overseas expansion through acquisition. Such acquisitions could have been done using their retained profits, and not sale of shares, if they hadn't paid out as much dividends.  Are they not as confident in using their own monies for acquisition; is this IPO intended to pass the risk of acquisition to new shareholders? 

5) It enjoys large profit margins, compared to peers. It mentions 'profit sharing' as a reason for its relative superior performance. But such wage expenses would have been on the P&L. If a large number of its employees are also shareholders, then the reported profit may have been 'inflated,' as a large proportion of employee compensation may have been made through dividends. Just speculating here as information on the breakdown of shareholders are not available in this prospectus.

6) It is fairly certain, however, that the management believes in giving ownership to its top executives. Most of its overseas subsidiaries is not 100% owned. This strategy is common to industries which has a high dependence on human capital for profitability/growth. Kingsmen comes to mind. New shareholders of HRnet can expect to be diluted as new share are issued to employees through its 123GROW programme, which will replace the 88GLOW programme.

7) Vanda 1 of Heliconia paid $15m for a 2.3% interest in October 2016. This values HRnetGroup at $652m. The IPO shares are likely to be priced slightly higher than this.
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#2
(29-05-2017, 08:41 PM)karlmarx Wrote: Recruitment agency HRnetGroup which runs Recruit Express and HRnet One has filed its preliminary IPO prospectus.

https://eservices.mas.gov.sg/opera/Publi...e560ccc05b


1) The gem of the group is  Recruit Express, where its clients are large companies seeking (project-based, lower wages, and/or lower-skilled) contract employees. Although the revenue from this business is based on a cost-plus-fee model (cost being the wage of the contract employee), it manages about 10,000 contract employees at any one time.

2) Because Recruit Express 'employs' so many lower wage workers, it received government incentives of $11.1m in FY16; in the form of Wage Credit Scheme, Special Employment Credit Scheme, and Temporary Employment Credit Scheme. This is about 23% of $48m controlling and non-controlling owners net profit in FY16. 

3) Although the company is highly profitable, its net assets has been decreasing from $126m in FY14 to $84m in FY16. This is due to the very large dividends it has been paying out; $85m in FY16, $52m in FY15, and $21m in FY14. Since the majority owners (Sim family) couldn't have planned, prepared and launched an IPO in a matter of months, why were they emptying the coffers before they selling shares of the company? 

4) Given the increasing probability of long-term anemic growth in Singapore (where about 75% of their revenue is derived), they probably see their business (and its valuation) peaking. This may explain one of their stated objective of the IPO for the purpose of overseas expansion through acquisition. Such acquisitions could have been done using their retained profits, and not sale of shares, if they hadn't paid out as much dividends.  Are they not as confident in using their own monies for acquisition; is this IPO intended to pass the risk of acquisition to new shareholders? 

5) It enjoys large profit margins, compared to peers. It mentions 'profit sharing' as a reason for its relative superior performance. But such wage expenses would have been on the P&L. If a large number of its employees are also shareholders, then the reported profit may have been 'inflated,' as a large proportion of employee compensation may have been made through dividends. Just speculating here as information on the breakdown of shareholders are not available in this prospectus.

6) It is fairly certain, however, that the management believes in giving ownership to its top executives. Most of its overseas subsidiaries is not 100% owned. This strategy is common to industries which has a high dependence on human capital for profitability/growth. Kingsmen comes to mind. New shareholders of HRnet can expect to be diluted as new share are issued to employees through its 123GROW programme, which will replace the 88GLOW programme.

7) Vanda 1 of Heliconia paid $15m for a 2.3% interest in October 2016. This values HRnetGroup at $652m. The IPO shares are likely to be priced slightly higher than this.
I think it's probably fair that the founder of the company reward himself with a big any pow before IPO, having put in so much effort to build up the company.
Question is would they continue to be generous with their payout, post IPO, probably not... Shy
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#3
"RECRUITMENT group HRnetGroup on Thursday launched a S$174 million initial public offering (IPO) on the Singapore Exchange mainboard at a price of S$0.90 per share for about 193.4 million shares.

More than half of that, at about 103.9 million shares, will go to cornerstone investors. Of the remaining 89.5 million shares, there will be a public tranche of 3.8 million shares. But that public tranche includes 440,800 shares reserved for the group's directors and employees.

The cornerstone investors include Aberdeen Asset Management Asia, FIL Investment Management (Hong Kong) and Meiji Yasuda Asset Management. Singapore investment firm Temasek Holdings' Heliconia Capital Management unit will also hold about 1.95 per cent of the group's post-IPO share capital."

http://www.businesstimes.com.sg/companie...-per-share

Looking at the recent market response to IPOs, this one will definitely be hot. Furthermore, most of the new shares are sold to institutional investors and through private placements; only 3+ million shares for the public.
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#4
Placement ~13x oversubscribed (pretty high!), retail ~68x oversubscribed and overall is ~15x oversubscribed.......Compared to recent UnUsual/Kimly/Spore O&G, it has much lower retail over subscription but it could be a function of size than anything else (HRNetGroup has more retail subscription shares @86mil or ~38% of the placement share count, compared to <5% for Spore O&G/Kimly)

HRNetGroup IPO balloting results: http://infopub.sgx.com/FileOpen/HRnetGro...eID=457959
UnUnusual placement: http://infopub.sgx.com/FileOpen/UnUsUaL%...eID=447020
Kimly/Spore O&G balloting results: https://www.valuebuddies.com/thread-8003...#pid137964

First day trading results:
IPO price = 0.90, Highest intraday price = 0.96 (6.7% premium) and closing price = 0.925 (2.8% premium) ---> Not exactly exuberant (since the market can't be easily cornered?)
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#5
Yes, I was a little surprised there wasn't a large pop. Perhaps some placees selling? I will be waiting to collect if the selling continues. Wink
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#6
hi karlmax,
The standard rule is to even think of accumulating only after at least ~6-12 months (regardless of the price), since those cornerstone investors/insiders like employees can only sell after a certain lock up period. Then again, this is just a general rule and at the end of the day, it is the quality of the company that matters.
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#7
Yes of course, it is far too early. Not even below IPO price yet!
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#8
It's has fallen quite a bit below IPO price. The Sim family bought at $0.75.
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#9
There has been a lot of selling since IPO days. HRnetGroup had to make a lot of stabilisation trades just to keep the price at $0.90. I see the Company as having too little independence. It is entirely a SIM family vehicle. Their 70% shareholder is SIMCO, the board is filled with SIMs. Thoughts anyone?
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#10
I may miss the boat, but it is still too early for me. Besides, it has only been a few months since its IPO. The results from the next few quarters will give prospective investors a better picture of its earning ability, without the pre-IPO window dressing.
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