Homepage
PR Newswire
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.
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.
