Disclaimer: This is a record of my investment decisions, not financial advice. I may change my decisions without notice. Use this only for education and entertainment. Do not rely on this for your investment decisions.

About

Share price: SGD 0.74

Market capitalisation: SGD 732 mn (USD 580 mn)

Enterprise value (EV): SGD 434 mn (USD 343 mn)

Average daily volume (ADV): SGD 100 k (USD 80 k)

NTM P/E: 15x

Time spent: ~10 hours

My Decision

Shortlist

Background

Recruitment agencies look uninvestable.

Robert Walters plc (RWA; RWA LN) is down ~85% from its peak after operating profits missed expectations. Recently, it sank into operating losses. ManpowerGroup Inc. (MAN; MAN US) down -75% from its peak. The list goes on…

HRnetGroup Limited (CHZ; HRNET SP) is not spared. Its operating profit has fallen below the level reached in 2020 during the Covid-19 downturn. However, I believe CHZ is reaching an inflection point. Growth in contract liabilities finally turned positive in 2024. Decline in gross profit decelerated significantly in H1’25.

I shortlisted CHZ because (a) it looks like a good business with temporary headwinds and (b) there is a good chance for more capital returns to shareholders.

In my Substack post, I walk through these 2 factors in detail and what I will focus on as I investigate further.

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Business model

Breakdown of 2024 revenue (SGD 567 mn, -2.0% YoY):

90% from flexible staffing (FS) (-0.2% YoY)
9% from professional recruitment (PR) (-16.2% YoY)
1% from others (+1.9% YoY)

Revenue from flexible staffing comprises fees charged to CHZ’s customers that covers the relevant contractor employee’s payroll in full and a portion of their payroll costs or such other fixed sums that CHZ agrees with the corporate customer, and is recognised at the time that the contractor employee provides services to the corporate customer.

Revenue from professional recruitment comprises fees charged to clients as a percentage of the remuneration of the candidate placed with the client in their first year of employment, and is recognised upon successful placement of the candidate in a permanent position with the client.

85% of revenue is derived from private sector while 15% from public sector.

23% of revenue is derived from IT & tech, 21% from financial & insurance and 15% from retail and consumer. The remaining 41% is derived from healthcare, manufacturing, services and others.

No single customer accounted for > 10% of revenue. Top 5 clients contribute ~19% of revenue. These clients have been with them for an average of 20 years.

The largest expense is sub-contractor expenses (78% of revenue). This mainly consists of the payroll of contractor employees deployed to customers.

Breakdown of 2024 gross profit (SGD 122 mn, -12.1% YoY):

52% from flexible staffing (-8.4% YoY)
45% from professional recruitment (-16.1% YoY)
3% from others (-9.8% YoY)

56% of gross profit is earned from Singapore, 40% from North Asia and 4% from rest of Asia.

At its IPO in 2017, CHZ is the largest recruitment agency in Singapore, with revenue market share ~20%1. The second and third players are Kelly Services (aka PERSOLKELLY) and Adecco. Both have ~10% revenue market share each. The remaining players are much smaller.

Relevant public comparables include Persol Holdings Co.,Ltd. (2181; 2181 JP), Adecco Group AG (ADEN; ADEN SW), ManpowerGroup Inc. (MAN; MAN US) and JAC Recruitment Co., Ltd. (2124; 2124 JP).

My reasons

Good business, temporary headwinds? CHZ looks like a good business. It achieved good return on equity (ROE) with almost no debt. LTM ROE ~13%. Prior to the current downturn, its ROE averaged 18%.

CHZ is the largest recruitment agency in Singapore with a long track record. Its scale provides proprietary insights into salary trends, hiring cycles and in‑demand skills across many sectors. Long relationships with key employers drive strong client stickiness and referrals. CHZ’s top 5 clients have been with them for an average of 20 years. Being the largest also means having broad, active candidate pools which improves both speed and quality of matching.

Its diversified business model helps reduce volatility. Its flexible staffing (FS) segment provides a relatively stable and steady revenue stream during economic downturns compared to its professional recruitment (PR) segment, which generally outperforms during periods of economic growth.

Just like its global peers, CHZ has been facing headwinds from a weak economic environment. However, I believe this is temporary. An inflection point looks near. In 2024, growth in contract liabilities finally turned positive. In H1’25, the decline in gross profit decelerated significantly, reaching -2.8% YoY, a significant improvement from -12.2% YoY in H2’24.

Capital returns? In H1’25, CHZ earmarked SGD 10 mn (~ 1.4% of market cap.) of its cash for share buybacks. It also increased its interim dividend by 7%.

There is a good chance that CHZ will return more capital to shareholders. In Oct 2025, CHZ placed ~1% of its shares outstanding to institutional investors. The investors include Avanda and Lion Global Investors. With more institutional investors, there is a higher chance that CHZ will return more cash to shareholders, especially since its current cash ~ 55% of revenue. Precedent: In Nov 2025, China Sunsine Chemical Holdings Ltd. (QES; CSSC SP) adopted a formal dividend policy after institutional investors like Avanda and LGI became shareholders.

Factors to focus on

Temporary headwinds? Gather more data to support my hypothesis that the headwinds are temporary. What are competitors and peers saying? What are industry insiders saying?

Acquisition of Staffline Group PLC (STAF; STAF LN)? According to SIAS, CHZ invested ~ SGD 56 mn in STAF and suffered significant losses. SIAS questioned if it is prudent for CHZ to invest an ~ SGD 56 mn when it does not appear that CHZ has access to detailed financial information to carry out due diligence nor had CHZ been able to appoint a non-executive director to the board of STAF2.

In the same document, CHZ said the loss does not affect the group’s P&L because the investment is carried at FVTOCI. In my view, regardless of CHZ’s accounting policy, this is still an economic loss.

Is this a case of prudent investment but bad luck? Are there any updates to CHZ’s plan for its remaining stake in STAF?

Future M&A? CHZ has earmarked ~ SGD 170 mn for M&A and organic growth. How does CHZ decide between M&A vs organic growth? What are CHZ’s acquisition criteria and process? At its IPO in 2017, CHZ disclosed its M&A criteria on page 46 of its prospectus3. Are there any changes to its criteria, especially after its experience with STAF?

Capital allocation? CHZ currently does not have a fixed dividend policy. Are there any plans to adopt a formal dividend policy?

Other payables? Between 2020 and 2023, CHZ reported ‘other payables’:

SGX-ST queried CHZ on the 2022 balance. CHZ replied that these “…were monies set aside in year 2020 and 2021 for contingencies to respond to trade related situations during the pandemic. The counterparties are not related parties.” When asked why the balance declined significantly in 2022, CHZ said “The reversal was made … after considering historical data and qualitative reasonable forward-looking information to estimate the amount that was no longer needed. The amount was S$14.8m ...”4

I hope to get more details on the ‘other payables’. What are they exactly? Are these provisions or payables? Did they impact P&L?

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References

Global Equities

[Shortlist] HRnetGroup Limited (CHZ; HRNET…