ed: JS / YM, PY, CS

BUY (Initiating Coverage)

Last Traded Price ( 2 Jan 2018): S$0.79 (STI : 3,430.30)

Price Target 12-mth: S$0.96 (21% upside)

Potential Catalyst: Acquisitions Analyst Andy SIM, CFA +65 6682 3718 andysim@dbs.com Alfie YEO +65 6682 3717 alfieyeo@dbs.com

Price Relative

Forecasts and Valuation FY Dec (S$m) 2016A 2017F 2018F 2019F

Revenue 365 399 416 445 EBITDA 59.6 56.0 62.2 64.4 Pre-tax Profit 59.3 56.4 63.1 65.8 Net Profit 41.1 41.0 47.9 49.9 Net Pft (Pre Ex.) 41.1 41.0 47.9 49.9 EPS (S cts) 5.02 4.44 4.73 4.93 EPS Pre Ex. (S cts) 5.02 4.44 4.73 4.93 EPS Gth (%) 8 (12) 7 4 EPS Gth Pre Ex (%) 8 (12) 7 4 Diluted EPS (S cts) 5.02 4.06 4.73 4.93 Net DPS (S cts) 11.7 2.03 2.37 2.47 BV Per Share (S cts) 10.3 27.5 29.9 32.4 PE (X) 15.7 17.8 16.7 16.0 PE Pre Ex. (X) 15.7 17.8 16.7 16.0 P/Cash Flow (X) 12.1 31.3 15.6 15.8 EV/EBITDA (X) 9.3 8.5 8.7 8.4 Net Div Yield (%) 14.8 2.6 3.0 3.1 P/Book Value (X) 7.7 2.9 2.6 2.4 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 40.8 22.6 16.5 15.8 Other Broker Recs: B: 4 S: 0 H: 0

ICB Industry : Industrials ICB Sector: Support Services Principal Business: Recruitment agency involved in the permanent placement and flexible staffing industry with presence in the Asia Pacific region.

Source of all data on this page: Company, DBS Bank, Bloomberg Finance L.P.

At A Glance Issued Capital (m shrs) 1,011

Mkt. Cap (S$m/US$m) 799 / 601

Major Shareholders (%)

SIMCO Ltd 74.4

Free Float (%) 25.6

3m Avg. Daily Val (US$m) 0.19

DBS Group Research . Equity

3 Jan 2018

Singapore Company Focus

HRNetGroup Ltd Bloomberg: HRNET SP | Reuters: HRNE.SI Refer to important disclosures at the end of this report

Opportune time to hunt

Initiating coverage with BUY, TP: S$0.96 for 21%

upside potential

Largest recruitment firm in Asia Pacific ex-Japan;

poised to ride on labour market recovery

Recent share price movements pose good entry

point at attractive FY17F/18F ex-cash PE of c.13x/11x

High net cash at 35% of market cap supports

inorganic overseas growth opportunities

Initiating coverage with BUY, TP: S$0.96; poised to ride on

labour market recovery. We initiate coverage on HRnetGroup

(HRnet) with a BUY rating and TP of S$0.96 based on 15x FY18F

ex-cash PE with an estimated FY18F net cash of c.S$278m.

Established in Singapore in 1992, and now in 10 Asian cities,

HRnet is the largest recruitment firm in Asia Pacific (ex-Japan)

according to Frost & Sullivan. It currently has 818 permanent

employees and holds a dominant market share in Singapore.

Going by the uptick in growth in Singapore’s services sector, we

believe the labour market has bottomed; and, a recovery should

bode well for HRnet being the largest player in Singapore.

Unique ownership model; strong cashflow, net cash for

acquisitions. With its recent IPO, the Group has extended its co-

ownership model with the 88GLOW and 123GROW incentive

programmes, which should aid in the overall productivity for the

Group, align employee interests, and drive better operating

performance. Operations are cashflow generative as seen from

FY14-16 (c.S$40m to c.S$53m) financials. As at 30 Sep 2017, net

cash stood at c.S$276m (c.35% of market cap), providing a strong

war chest for inorganic growth.

Opportune time to hunt; attractive ex-cash PE of 13x FY17F.

In our view, the movements in share price post its recent IPO

(priced at S$0.90) presents an opportunity for investors to buy into

this counter; it is now trading at an ex-cash PE of c.13x/ 11x on

FY17F/18F EPS, significantly lower than its peers. We project net

profit growth of c.17% /4% for FY18F/19F, driven by higher

revenue and gross profit, and lower level of non-controlling

interests. Key risks include downturn in economic and business

cycles, competition, departure of key personnel and relatively low

liquidity of stock, possibly due to its short listing history.

Page 2

Company Focus

HRNetGroup Ltd

Table of Contents

Investment Thesis 3

Executive Summary 4

SWOT Analysis 6

Valuation & Peer Comparison 7

Company Background/ Business Model 10

Cost Structure 17

Competitive Strengths 19

Growth Strategies 22

Management Team/ Board of Directors 29

Industry 32

Key Risks 36

Financials & Assumptions 39

Page 3

Company Focus

HRNetGroup Ltd

INVESTMENT THESIS

Profile Rationale

HRnetGroup is the largest recruitment agency in the Asia

Pacific (excluding Japan), according to Frost & Sullivan. As at

30 Sep 2017, the Group has 818 permanent employees,

operating through 24 business entities in 10 Asian growth

cities, with its headquarters in Singapore. It has two

operating segments, namely Professional Recruitment and

Flexible Staffing.

We initiate coverage on HRnet with a BUY rating and a TP of

S$0.96. Post the recent correction, the counter is currently

trading at 17.8x/ 16.7x FY17F/18F PE. Excluding cash on its

balance sheet, PE (ex-cash) is even lower at c.13x/ 11x on our

earnings estimates. Including the cash raised from its recent

IPO, the Group is currently sitting on c.S$276m cash (as of 30

Sep 2017), representing c.35% of its market cap.

We believe the labour market has bottomed in Singapore,

going by our economist’s reading of the growth in the

services sector. This should bode well for recruitment services

firm like HRnet. The institution of the Group’s co-ownership

model with its IPO has seen over 400 of its employees

becoming shareholders. In our view, this aids in increasing

motivation and bodes well for the Group.

Valuation Risks

We peg our valuation at 15x on the ex-cash earnings in

FY18F, coupled with estimated FY18F net cash balance of

S$275m. Our DCF model with WACC of 10% and terminal

growth of 2.5% also implies a TP of S$0.96.

Downturn in economic and business cycles affecting job

vacancies and recruitment.

Heightened competition, given relatively low barriers to entry,

particularly in the Professional Staffing business. Loss of licence and reputation in the various markets the Group operates in. Departure of key operating personnel could impact financial performance. Relatively low liquidity for the counter given its short listing history could result in sharp share price movements.

Source: DBS Bank

Page 4

Company Focus

HRNetGroup Ltd

Executive Summary

Initiate coverage with BUY, TP: S$0.96; trades at ex-cash

FY17F PE of 13x with S$276m cash hoard. We initiate

coverage on HRnetGroup (HRnet) with a BUY rating and a TP

of S$0.96, pegged at 15x on ex-cash earnings in FY18F,

coupled with estimated cash hoard of c.S$275m (estimated

ending balance for FY18F). The movements in share price post

its recent IPO (priced at S$0.90) present an opportunity for

investors to buy into this counter as it is now trading at an ex-

cash PE of c.13x/ 11x on FY17F/18F EPS, significantly lower

than peers.

Labour market has bottomed; recovery bodes well. In

addition, our DBS economist believes that the Singapore

labour market has bottomed, and is on the cusp of recovery.

This is premised on the view that job growth tends to lag the

services sector by about two quarters; and, the latter seems to

have bottomed in 3Q16. With the services sector in the midst

of recovery, this augurs well for recruitment firms, and

particularly so for HRnet which is the largest player in

Singapore.

Table – GDP vs Job vacancy-to-unemployed

Source: Singstats, ThomsonReuters, DBS Bank

Largest Asia-based recruitment agency in Asia Pacific (ex-

Japan. HRnetGroup Limited is the largest Asia-based

recruitment agency in the Asia Pacific region, excluding Japan.

We like this counter for its high ROE and cash generative

business, a driven and motivated organisation led by its

founder, Mr Peter Sim and his senior management team. With

the recent IPO, more than 400 of its employees are now

shareholders of the company, which will further spur

motivation.

Founded in 1992 with 25 years of operating history. The

Group was first founded by Mr Peter Sim in 1992 when

HRnetOne Pte. Ltd was set up to provide professional

recruitment and flexible staffing services in Singapore, and has

since expanded across Asia. As of 30 Sep 2017, the Group has

818 permanent employees, operating through 24 business

entities in 10 Asian growth cities, namely, Singapore (location

of headquarters), Kuala Lumpur, Bangkok, Hong Kong, Taipei,

Guangzhou, Shanghai, Beijing, Tokyo, and Seoul.

Recruitment services industry in Asia Pacific worth S$175bn

(by revenue) in 2016, forecast to grow at CAGR of 9.4% till

2021. According to Frost & Sullivan, the Asia Pacific

recruitment market for professional recruitment and flexible

staffing was collectively worth about S$175.4bn (by revenue)

in FY2016. In North Asia (Hong Kong, Taiwan, PRC, Japan and

South Korea), the estimated size of the recruitment market is

c.S$127.4bn, while that for Rest of Asia (comprising Malaysia

and Thailand) and Singapore was worth c.S$5.6bn and

c.S$1.3bn, respectively.

Riding on growth in Asian cities. According to Frost & Sullivan,

the Asia-Pacific professional recruitment and flexible staffing

market (by revenue) is forecast to reach S$274.9bn in 2021

Page 5

Company Focus

HRNetGroup Ltd

from S$175.4bn in 2016, growing at a CAGR rate of 9.4%.

Growth is expected to be driven by demand for flexible

staffing which is expected to grow by 9.5% CAGR versus

professional recruitment at 9.1% CAGR.

Long track record. HRnet has a strong track record with over

25 years of operating history since 1992, establishing new

brands and businesses and growing organically. The Group

has recorded strong growth and profitability since inception.

Its 24-year (from 1992 to 2016), 10-year (from 2006 to 2016),

and FY2014 to FY2016 CAGRs for revenue were 31.3%,

12.7%, and 6.1% respectively. Its 24-year (from 1992 to

2016), 10-year (from 2006 to 2016), and FY2014 to FY2016

CAGRs for net profit were 40.3%, 14.7%, and 12.9%

respectively. This has been achieved through HRnet’s strong

relationship with customers, diversified business model across

professional recruitment and flexible staffing, and strategic

expansion across Asian growth cities.

Co-ownership model, providing incentives. With its recent

IPO, the Group has extended its co-ownership model through

the 88GLOW and 123GROW incentive programmes, which

top management believes will aid in the overall productivity

for the Group, align employee interests, and drive better

operating performance, thereby contributing to the Group’s

growth.

Both 88GLOW and 123GROW incentive programmes were

developed to reward employees. The 88GLOW and

123GROW Plans have 404 employees (as at Sep 2017) that

are co-owners of HRnet. The 88GLOW Plan serves to motivate

existing co-owners to inspire employees to become Productive

Headcount (PHCs), defined as sales consultants who achieve

gross profit of at least three times over their gross

compensation. HRnet believes that such incentive

programmes will be a strong driving force towards achieving

even higher productivity as the probability of co-owners

interacting and engaging with candidates and clients is

higher.

Cashflow generative. Operations are cashflow generative with

operating cashflows of c.S$40m to c.S$53m from FY14-16.

We project the Group to remain in a strong net cash position

in FY17F and FY18F given its cash generative business.

Operating cash flow is projected to remain at c.S$50m in

FY18F, after a projected drop in FY17F due to a decrease in

accounts payable post payment of accrued dividends.

Growth on expectations of higher productive headcount. We

project net profit (attributable to owners of HRnetGroup)

growth of c.17% /4% for FY18F/19F, after flat growth in

FY17F. The projected growth is driven by increase in gross

profit and revenue, and a lower non-controlling interest due

to the Group’s 88GLOW plan.

For FY17F, we are projecting profit after tax and minority

interest (PATMI) to dip marginally by 0.2% y-o-y to S$41m

from FY16 due mainly to a reduction in “other income”,

arising from lower government grants/ wage credits in

Singapore, and its IPO expenses (estimated at S$3.6m in

FY17F). Excluding the projected one-off IPO expenses, our

forecast for FY17F and PATMI would have been about S$44m,

registering 7.1% increase from FY16.

Further growth through acquisitions and partnerships. HRnet

is looking to grow through acquisitions and partnerships to

strengthen its position in existing markets, or to enter into

new ones. With projected net cash of c.S$272m by end-

FY17F, acquisitions may allow HRnet to jump start its entry

into new cities and allow HRnet to scale up much faster

together with the targets’ existing resources. With

partnerships, HRnet could co-operate with players with

stronger localised knowledge, deeper experience and track

record, or specific specialisations especially in North Asia, and

via acquisitions or partnerships with existing players.

For markets/cities in which HRnet is already present, it plans to

explore acquisitions and partnerships in complementary

business areas. For acquisition targets smaller in size, HRnet

intends to acquire majority stakes and require the existing

management to remain as minority shareholders in the

business. For acquisition targets that are similar or larger in

size, HRnet intends to acquire at least 20% shareholding

interest in such targets.

Risks. The risks encompass regulatory, operational as well as

macro factors. We highlight that the list is not exhaustive.

1. Downturn in economic and business cycles affecting job

vacancies and recruitment.

2. Heightened competition, given relatively low barriers to

entry, particularly in the Professional Staffing business.

3. Loss of licence and reputation in the various markets the

Group operates in.

4. Departure of top management and personnel, business

management teams, key performers, and consultants,

particularly those of Productive Headcount status.

5. Execution of its inorganic growth initiatives.

6. Cessation and/or reduced government grants.

7. Others, including changes in regulations affecting

operations, and changes to our forecasts.

Page 6

Company Focus

HRNetGroup Ltd

SWOT Analysis

Strengths Weakness

Largest recruitment agency based in the Asia Pacific

(excluding Japan) with multiple brands to serve different

segments of the manpower recruiting market.

Strong track record with over 25 years of operating

history since 1992, establishing new brands and

businesses and growing organically.

Complementary business model, with the Flexible

Staffing business providing the Group with a relatively

stable and steady revenue stream even in an economic

downturn, and the Professional Recruitment business

generally performing well during periods of economic

growth.

Diverse base of clients across 30 diversified sectors, with

Top 5 and Top 10 clients respectively accounting for

14.1% and 20% of Group revenue in 2016, respectively.

Large scale provides position of strength, particularly for

Flexible Staffing where the agency acts as the employer

and pays wages and salaries for contractor employees,

and billing corporate customers thereafter.

Ability of management to adapt to the change in needs, nature and composition of the labour market to suit clients’ requirements.

Highly dependent on consultants in driving sales and

topline growth. The management and achievement of

a high percentage of sales personnel being productive

headcount (in respect of a sales personnel, this is

defined as those who have achieved gross profit of 3

times his/her fixed salary) is essential in driving growth

and profitability for the Group. Departures of

performing key individuals and/or group of consultants

may have an impact on the Group’s operating

performance.

Despite a long operating history, growth has been achieved via organic routes. HRnet may not possess the required experience to pursue inorganic growth through acquisitions and strategic alliances.

Opportunities Threats

Expect economic growth in Asian cities to lead to an

increase in demand for staffing, which in turn presents

opportunities for recruitment agencies.

Strong cashflow generation enables Group to pursue

inorganic growth opportunities such as strategic

acquisitions and/or partnerships in new or existing

markets.

Opportunity to further improve and extract efficiency in

its various offices to enhance margins for the Group,

particularly with its co-ownership business model and

lean corporate structure.

Taps on co-ownership model to drive performance of its consultants through the implementation of its 88GLOW and 123GROW incentive programmes (details of such plans in later sections of this report).

Low barriers to entry for new entrants in Professional

Recruitment segment which could result in price

competition and thus resulting in clients switching to

other competitors.

Regulatory framework changes, breach of laws and

regulations as well as complaints may affect

operations and brand reputation of the various

recruitment agencies under the Group’s umbrella.

Downturn in economy and employment, causing

placement opportunities to drop, and corporates

turning to more cost conscious initiatives, such as

internal talent acquisition team (for large

corporations). While the Group’s performance may be

mitigated partially by its exposure in the Flexible

Staffing segment, its overall performance may still be

impacted.

Cessation and/or changes to government grants may impact financial performance.

Source: DBS Bank

Page 7

Company Focus

HRNetGroup Ltd

Valuation & Peer Comparison

Initiate with BUY, TP: S$0.96; ex-cash PE (FY18F) of 11x with

c.S$276m cash horde. We initiate BUY on HRnetGroup with

a TP of S$0.96 based on a PE valuation methodology. We

pegged our valuation to 15x on ex-cash earnings in FY18F,

coupled with its estimated average cash horde of c.S$278m

(estimated end FY18F). We also cross checked our valuation

with the discounted cashflow (DCF) methodology; based on a

WACC of 10% and terminal growth of 2.5% post FY22F,

our equity valuation stands at c.S$952m, representing

S$0.94/share.

The retreat in share price post its recent IPO (priced at

S$0.90) presents an opportunity for investors to buy into this

counter as it is now trading at an ex-cash PE of c.13x/ 11x on

FY17F/18F EPS, significantly lower than its listed peers of

around 16x (ex-cash PE).

Based on our peer group analysis, we noted that

international recruitment peers are trading at a forward PE

range of between 13x to 30x, with an average at about 19x.

Stripping out cash, the ex-cash PE of the peer group stands at

around 16x. As such, we believe pegging our TP to 15x on

average of FY17F/18F ex-cash earnings, coupled with its

estimated average cash balance in FY17F/18F is justified. Our

TP implies 23x/ 20x PE on our FY17F/18F earnings. Although

this will be slightly above the peer group average, our

forecasts have not explicitly factored in inorganic growth

from the deployment of its cash.

Based on the PE (x) vs EPS CAGR chart below, we noted two

main distinct groups. For the first, most of the peers are

trading at mid-teens PE to almost 20x PE. These companies

are largely projected to deliver earnings per share growth of

up to low-teens. Secondly, we also noted that there are a

handful of companies which are trading at more than 20x PE,

and up about c.30x PE.

Peer Group - PE(x) vs EPS CAGR (2-year forward)

Source: ThomsonReuters, DBS Bank

Page 8

Company Focus

HRNetGroup Ltd

Peer valuation comparison– PE, EV/EBITDA, P/BV, ROE

Company

Market Cap

(US$m) Px Last PE (Yr 0) PE (Yr 1) PE(Yr 2)

Hist. EV/EBITDA

(x)

Fwd EV/EBITDA

(x) P/BV (x)

P/Sales (x)

ROE (%)

Operating Margin

(%)

Net Margin

(%)

Dividend Yield (%)

Net Gearing

(x)

HRnetGroup Ltd 578 0.77 15.7x 17.8x 16.7x 9.3x 8.5x 2.6x 2.0x 49% 16.2% 11.3% na cash

Recruit Holdings Co Ltd 42,147 2,800.00 57.6x 33.4x 29.1x 19.9x 15.6x 5.8x 2.3x 12% 6.4% 4.6% 1.2% cash

Adecco Group AG 13,096 74.55 17.1x 15.7x 14.8x 9.7x NULL 3.2x 0.5x 19% 4.7% 3.2% 3.2% 0.24

Randstad Holding NV 11,265 51.24 14.2x 12.7x 11.7x 9.8x 8.8x 2.3x 0.4x 14% 3.8% 2.8% 3.7% 0.19

ManpowerGroup Inc 8,357 126.11 20.5x 18.3x 16.5x 10.4x 9.1x 3.2x 0.4x 19% 3.8% 2.3% 1.5% 0.13

Robert Half International Inc 7,008 55.54 20.6x 22.1x 18.7x 10.9x 10.9x 6.1x 1.4x 32% 10.5% 6.5% 1.7% cash

Persol Holdings Co Ltd 5,932 2,824.00 36.9x 29.9x 25.3x 14.7x 11.6x 4.5x 1.0x 13% 5.0% 3.0% 0.6% cash

Hays PLC 3,585 182.90 19.1x 16.7x 15.2x 10.9x 9.5x 4.5x 0.5x 24% 4.2% 2.7% 1.8% cash

On Assignment Inc 3,343 64.27 23.8x 21.6x 20.1x 15.7x 11.8x 3.6x 1.3x 11% 7.8% 4.0% na 0.71

AMN Healthcare Services Inc 2,361 49.25 20.8x 19.2x 18.1x 12.3x 9.8x 4.4x 1.2x 24% 10.1% 5.6% na 0.78

Korn/Ferry International 2,339 41.38 18.4x 16.7x 14.7x 9.8x 8.6x 2.1x 1.4x 8% 7.1% 5.1% 1.0% cash

Pagegroup PLC 2,064 467.50 20.5x 17.7x 16.4x 12.1x NULL 5.7x 1.2x 29% 8.4% 6.0% 2.6% cash

TechnoPro Holdings Inc 1,861 6,120.00 27.0x 26.1x 24.7x 21.1x 17.6x 7.7x 2.0x 28% 9.6% 7.7% 1.8% 0.10

En-Japan Inc 2,343 5,310.00 54.3x 37.8x 29.0x 29.0x 18.1x 9.4x 7.4x 17% 19.6% 12.6% 0.5% cash

Kelly Services Inc 1,052 27.27 17.7x 13.4x 13.2x 11.6x 8.6x 0.9x 0.2x 12% 1.2% 2.2% 1.1% cash

Kforce Inc 668 25.25 18.0x 16.9x 14.4x 11.6x 9.2x 4.7x 0.5x 27% 4.4% 2.5% 1.9% 0.94 Heidrick & Struggles International Inc 461 24.55 25.0x nm 19.4x 5.7x 6.0x 1.8x 0.7x 6% 5.9% 2.6% 2.1% cash

Simple Average 25.7x 21.2x 18.8x 13.5x 11.1x 4.4x 1.4x

Source: ThomsonReuters, DBS Bank estimates (data as of 29 Dec 2017)

Page 9

Company Focus

HRNetGroup Ltd

Peer valuation comparison– Selected financial metrics

Company FYE Market

Cap (m) Px Last

EPS CAGR (FY0-

FY2) (%) Revenue (US$m)

Gross profit

(US$m) EBIT

(US$m) EBITDA (US$m)

Net profit (US$m)

Gross margin

(%)

EBIT margin

(%)

EBITDA margin

(%) Beta

HRnetGroup Ltd 31-Dec 601 0.79 8% 252 92 41 42 29 36.4 16.4 16.6 NA

Recruit Holdings Co Ltd 31-Mar 42,147 2,800 41% 16,520 7,729 1,142 2,072 1,184 46.8 6.9 12.5 0.79

Adecco Group AG 31-Dec 13,096 74.55 8% 23,873 4,495 1,154 1,279 787 18.8 4.8 5.4 1.06

Randstad Holding NV 31-Dec 11,265 51.24 10% 21,745 4,136 920 1,090 670 19.0 4.2 5.0 0.98

ManpowerGroup Inc 31-Dec 8,357 126.11 12% 19,654 3,334 751 836 444 17.0 3.8 4.3 1.13

Robert Half International Inc 31-Dec 7,008 55.54 5% 5,250 2,161 553 618 343 41.2 10.5 11.8 1.25

Persol Holdings Co Ltd 31-Mar 5,932 2,824 21% 5,315 1,282 300 390 236 24.1 5.6 7.3 0.96

Hays PLC 30-Jun 3,585 182.90 12% 6,618 1,243 275 304 181 18.8 4.2 4.6 0.80

On Assignment Inc 31-Dec 3,343 64.27 9% 2,440 795 190 252 97 32.6 7.8 10.3 1.41

AMN Healthcare Services Inc 31-Dec 2,361 49.25 7% 1,902 620 192 221 106 32.6 10.1 11.6 1.09

Korn/Ferry International 30-Apr 2,339 41.38 12% 1,622 1,494 176 223 129 27.0 10.8 13.7 1.27

Pagegroup PLC 31-Dec 2,064 467.50 12% 1,476 766 125 146 89 51.9 8.5 9.9 0.79

TechnoPro Holdings Inc 30-Jun 1,861 6,120 4% 891 209 86 90 69 23.4 9.6 10.0 0.80

En-Japan Inc 31-Mar 2,343 5,310 37% 285 256 56 75 46 90.0 19.8 26.5 0.96

Kelly Services Inc 31-Dec 1,052 27.27 16% 5,277 906 67 88 121 NA 1.3 1.7 1.01

Kforce Inc 31-Dec 668 25.25 12% 1,320 408 59 67 33 31.0 4.4 5.1 1.31 Heidrick & Struggles International Inc 31-Dec 461 24.55 14% 601 582 35 52 15 31.3 5.9 8.6 1.05

Source: ThomsonReuters, DBS Bank (data as of 29 Dec 2017)

Page 10

Company Focus

HRNetGroup Ltd

Company Background

Largest Asia-based recruitment agency in Asia Pacific

(excluding Japan). According to Frost & Sullivan, HRnet Group

is the largest recruitment agency based in the Asia Pacific

(excluding Japan). As of 30 Sep 2017, the Group has 818

permanent employees, operating through 24 business entities

in 10 Asian growth cities, namely, Singapore (location of

headquarters), Kuala Lumpur, Bangkok, Hong Kong, Taipei,

Guangzhou, Shanghai, Beijing, Tokyo and Seoul.

Started in 1992, with history of 25 years. The Group was first

founded by Mr Peter Sim in 1992 under the brand name

HRnetOne and provided professional recruitment and flexible

staffing services in Singapore. Over the years, it has expanded

across Asia, focusing on the growth cities. Currently, it

operates in 10 Asian cities. The table on page 18 summarises

its key milestones since 1992.

22 co-owners and 141 leaders with over 8 years’ experience

Leaders Count Avg length

of svc

Average

age

Group business leaders 18 >14 44

Business leaders 20 >11 42

Practice leaders 102 >8 36

Total 140

Source: Company Prospectus, DBS Bank

Presence in 10 Asian Growth Cities… …through portfolio of brands

Source: Company

Page 11

Company Focus

HRNetGroup Ltd

Key Milestones of the Group since 1992 to 2016

Year Event

1992 Established HRnetOne to provide professional recruitment and flexible staffing services in Singapore.

1994 Expanded into Kuala Lumpur, Malaysia through HSB Consulting Sdn. Bhd. (formerly known as HSB Performance Sdn.

Bhd. and HRnetOne Sdn Bhd) to provide recruitment and human resource consulting services. This entity and its successor

was eventually restructured and transferred to HRnetOne (Malaysia) in 2016.

1996 Incorporated Recruit Express in Singapore to specialise in providing flexible staffing services to our customers. Expanded

into Hong Kong through HRnetOne (Hong Kong) to provide professional recruitment services.

1998 Expanded into Taipei, Taiwan through HRnetOne (Taiwan) Branch to provide professional recruitment business.

2000 Incorporated PeopleSearch (Taiwan) Branch in Taipei, Taiwan upon recognising a niche in the Taiwanese market for

success-based search services. Expanded into Tokyo, Japan through HRnetOne (Japan) to provide professional recruitment

services.

2001 Incorporated Recruit Express (Taiwan) Branch in Taipei, Taiwan to provide professional recruitment and flexible staffing

services. Incorporated PeopleSearch in Singapore to specialise in professional recruitment services.

2004 Incorporated APRE in Kuala Lumpur, Malaysia to provide professional recruitment services.

2005 Incorporated: PeopleFirst in Kuala Lumpur, Malaysia to provide professional recruitment services; PeopleSearch (Japan) in

Tokyo, Japan to provide professional recruitment services; Recruit Express (Hong Kong) in Hong Kong to provide

professional recruitment and flexible staffing services.

2006 Expanded into: Bangkok, Thailand through HRnetOne (Thailand) and Shanghai, PRC through HRnetOne (Shanghai) to

provide professional recruitment services. Introduced PeopleSearch brand to Hong Kong to provide professional

recruitment services.

2007 Incorporated SearchAsia Consulting in Singapore to provide professional recruitment services.

2008 Expanded into Beijing, PRC through HRnetOne (Beijing) to provide professional recruitment services.

2011 Expanded into Seoul, Korea through HRnetOne (South Korea) and Guangzhou, PRC through HRnetOne (Guangzhou) to

provide professional recruitment services. Incorporated PeopleSearch (Shanghai) to provide professional recruitment

services.

2013 Incorporated RecruitFirst in Singapore to provide professional recruitment and flexible staffing services and Recruit Express

Services (Malaysia) in Malaysia to provide flexible staffing services.

2016 Incorporated RecruitFirst (Hong Kong) in Hong Kong, to provide professional recruitment and flexible staffing services.

Vanda 1 Investments Pte. Ltd., which is managed and controlled by Heliconia Capital Management Pte. Ltd. (a wholly-

owned subsidiary of Temasek Holdings (Private) Limited), invested in the company.

2017 Listed on the SGX on 19 June at an initial offering price of S$0.90 per share, raising net cash proceeds amounting to

S$176.1m

Source: Company, DBS Bank

Page 12

Company Focus

HRNetGroup Ltd

Business segments and Geographical areas

The Group is organised broadly into two operating segments

– Professional Recruitment and Flexible Staffing. The charts

below illustrate the revenue and gross profit contribution to

the Group over the past 3 years, from FY14 to FY16.

As of 1H17, Flexible Staffing contributed about 77% of the

Group’s revenue, but accounted for only 34% of the Group’s

gross profit. On the other hand, Professional Recruitment

accounts for a smaller proportion of revenue (22% in 1H17),

but contributed to about 64% of the Group’s gross profit.

The main reason for this is due to the cost structure of flexible

staffing, where the salaries and wages of the contractor

employees paid by the clients are recognised as revenue for

the Group. On the other hand, the salaries/ wages paid to the

same employees are recognised as cost of sales.

In terms of geographical area, Singapore accounted for 76%

of Group’s revenue for FY16 and 57% of gross profit. The

higher percentage of contribution to revenue vis-à-vis gross

profit by Singapore compared to the other geographical areas

is due to the Group’s Flexible Staffing business in Singapore

being larger. On the other hand, Professional Recruitment

accounted for the bulk of business in North Asia comprising

Hong Kong, Taipei, Guangzhou, Shanghai, Beijing, Tokyo and

Seoul, and Rest of Asia comprising Kuala Lumpur and

Bangkok.

Revenue (S$ m) by operating segment – FY14 to 1H17 Gross profit (S$ m) by operating segment – FY14 to 1H17

Source: Company, DBS Bank Source: Company, DBS Bank

Revenue contribution (%) by geography – FY16 Gross profit (S$ m) by geography – FY16

Source: Company, DBS Bank Source: Company, DBS Bank

Note: North Asia comprises Hong Kong, Taipei, Guangzhou, Shanghai, Beijing, Tokyo and Seoul, and Rest of Asia comprises Kuala Lumpur and

Bangkok

Page 13

Company Focus

HRNetGroup Ltd

A) Professional Recruitment

The Professional Recruitment business involves the permanent

placement of positions for corporate clients. There is a need

for strong collaboration between the company and the

corporate customers to understand the clients’ business goals

and needs in the placement of the positions. The recruitment

consultants will need to have an in-depth understanding of

the client’s industry and specialisation, as well as the talent

landscape to identify suitable candidates, and to facilitate the

needs of the client.

A fee is charged to the client based on a percentage (which is

determined after taking into account various factors, such as

the customary rate in the relevant city of operation, the

seniority of the candidate, the degree of complexity and

difficulty in finding a candidate for the position and the

volume of the client’s business) of the first year remuneration

offered and accepted for the position, upon successful

selection and placement.

Within this segment, there are also typically two types of

service agreements, namely success-based service agreements

and exclusive retainer-based service agreements. For success-

based service agreements, this is typically applied to

placement of junior/ middle to senior positions. On the other

hand, exclusive retainer-based service agreements are typically

for permanent placement of senior or niche positions. The

following table summarizes the salient points of the two

service agreements:

Salient points of Success-based and Exclusive retainer-based service agreements

Factors Success-based service agreements Exclusive retainer based service agreements

Summary Billing upon successful placement of candidates –

signing of letter of offer (for junior positions) or starting

work (for middle to senior position)

Billing in stages and on exclusive basis

Types of position Junior, middle to senior positions. Source for single,

multiple or bulk positions.

Senior or niche positions.

Exclusivity Exclusive or non-exclusive basis, in which clients are at

liberty to engage other recruitment service providers

Exclusive

Billing Junior positions - usually billed upon candidates signing

offer letter

Middle to Senior positions - billed when candidates start

work

Bill clients in two or three stages, including a percentage

upon signing of agreement and upon presentation of

shortlisted candidates, and balance upon successful

placement

Warranty In the event that the candidates do not show up for work or resigning (within 30-60 days warranty period, depending

on seniority of positions), a one-time replacement would be undertaken if invoices not paid. Else, to seek alternative

arrangements as negotiated with client.

Source: Company, DBS Bank

Page 14

Company Focus

HRNetGroup Ltd

Professional Recruitment Services (PRS): Flow chart of major steps in provision of PRS

Source: Company

B) Flexible Staffing

In the Flexible Staffing business, this involves staffing solutions

for corporate clients seeking variability in operating costs and

talent deployment. For workers, this business solution satisfies

candidates seeking less formal, contract, temporary and part-

time employment.

Working in teams, specialised in industry. In this segment,

consultants work in teams and each specialises in a particular

industry within a specific geographical area. The sourcing of

candidates is through multiple channels such as internal

candidate database, job portals, social media and other digital

channels, referrals (by candidates, customers), walk-in

applications, online registration to job opportunities, etc.

Compared to the Professional Recruitment Service where

successful candidates are directly employed by clients, the

selected candidates in the Flexible Staffing Business are

employed by the Group as Contractor Employees on a

contract basis. This means that these candidates are put on

the Group’s payroll, and are concurrently placed with clients

on back-to-back agreements.

The salaries and employment benefits of the Contractor

Employees are paid by the Group at each payroll cycle, and

clients are subsequently billed a fee that covers the Contractor

Employee’s payroll plus a margin as a percentage of the

payroll or a fixed sum agreed. For the Contractor Employees,

the Group will handle the administrative work such as

preparation of contracts, calculation of payroll, employee

benefits and insurance, etc.

Service agreement tends to be for a fixed duration, depending

on the needs. An agreement could either be terminated by

either the Group or client, by serving an agreed period of

notice. The Group usually bills clients periodically by per order

basis, and clients are typically required to pay the fees within

30 days of invoicing.

The Group’s clients are obligated not to hire directly or

indirectly the Contractor Employees for a certain period

following their services. But in the event this happens, clients

are required to pay a placement fee to the company.

Monthly average of 10,500 deployments. The Group has

deployed a monthly average of 10,500 contractor employees

to its clients for FY16 and announced that it had 10,542

monthly average employee contractors in 3Q17. Based on the

gross profit from Flexible Staffing Business for FY16, we

estimate the gross profit per contractor employee deployed is

approximately $340 per month, or about S$14-15 per day

(assuming 22 to 24 working days a month).

The following table illustrates the flow chart of the Group’s

Flexible Staffing Services.

Page 15

Company Focus

HRNetGroup Ltd

Flexible Staffing Services (FSS): Flow chart of major steps in provision of FSS

Source: Company

Diversified customer base, top 5 accounts for <15% of

revenue

The Group has a diversified group of customer base, which

numbers over 2,000 clients as of 31 Dec 2016 including 104

Fortune 500 clients such as Samsung Asia, Master Kong

Holdings, Bundwealth, Seibu Holdings, Olympus, Fubon Bank,

Gardens by the Bay, and Acer.

The Group’s customers base is also diversified with no single

customer accounting for over 5% of revenue for FY16. For

FY16, the total revenue contribution from the top five and top

10 customers stood at 14.1% and 20% of Group’s revenue,

respectively.

Top 5 customers’ revenue contribution in FY16

Top 5 customers

FY2016 Revenue

contribution

Customer Since

Asian conglomerate

Top 3 largest technology company globally by revenue, Fortune 100 4.2% 1999

Singapore bank

Top 3 largest bank in Southeast Asia by total assets 3.1% 2000

Regional telecommunications provider

Top 3 largest telecommunications provider in Asia by total wireless subscribers, Fortune

500 2.8% 1999

International bank

Top 5 largest bank globally by assets, Fortune 100 2.5% 2000

International data networking and telecommunications equipment company

Top 3 largest mobile-phone producer, Fortune 500 1.4% 2003

Contribution from top 5 customers 14.1%

Contribution from top 10 customers 20.0%

Source: Company IPO Prospectus

Page 16

Company Focus

HRNetGroup Ltd

Group’s revenue contribution by industries in 3Q17 (% in brackets denotes 2016 figures)

*% in bracket denotes 2016 figures

Source: Company

Page 17

Company Focus

HRNetGroup Ltd

Cost Structure Sub-contractor expenses comprise largest cost component,

but this is due to recognition of contractor employees’ payroll.

The largest cost component for the Group is sub-contractor

expenses, which are incurred as cost of sales in relation to the

payroll expenses of Contractor Employees for the Flexible

Staffing segment. In return, corporate clients pay the Group a

fee for the management of admin, payroll, insurance, etc. This

expense item will move in tandem with the revenue from the

Flexible Staffing business.

Aside from sub-contractor expenses, the Group’s other cost

items are employee benefit expenses, facilities and

depreciation expense, selling and other expenses. Among the

operating expenses, employee benefits accounts for about

79% of total operating expenses (excluding sub-contractor

expenses). Employee benefit expenses essentially comprise the

compensation and benefits paid to the Group’s consultants

and support staff.

Revenue-Cost Break Down (FY16)

Note:

* Non-controlling Interest

** Net profit after excluding non-controlling interest

Source: Company, DBS Bank

Operating expenses breakdown (%) for FY16 Operating expenses trend FY14 to FY19F

Source: Company, DBS Bank Source: Company, DBS Bank estimates

Other employee benefit

expenses79%

Facilities and

depreciation expenses

12%

Selling expenses

5%

Other expenses

4%

Expenses as % of expenses (excl. sub-contractor expenses) FY16

Page 18

Company Focus

HRNetGroup Ltd

Being a recruitment agency, manpower is the largest cost

component. The Group has a total of 818 employees, as of 30

Sep 2017. As of 1H17, it has 702 management and sales

employees and 106 business support staff. According to Frost

& Sullivan’s report, HRnet’s proportion of fee earners as a

percentage of total employees ranks higher than key players

such as PageGroup, Hays, Hendrick & Struggles, and Korn

Ferry.

For the forecast years FY17F and FY19F, we project total

operating expenses per employee to increase from FY16’s

S$102.1k to S$109.8k/ S$109.4k/ S$112.8k in FY17F/

18F/19F, respectively. This will be largely driven by the

increases of wages for employees and sales consultants given

the higher revenue and gross profit achieved. However, given

the operating leverage, we project that total operating

expenses for the Group will remain under 25% of total

revenue in our forecast years. The larger increase in cost per

staff in FY17F, from FY16, is mainly due to one-off IPO

expenses amounting which skew other expenses.

Operating expenditure (opex) per employee expected to increase in 2017-2018 due to staff costs, but overall opex as % of

revenue expected to remain under 23%

Source: Company, DBS Bank estimates

Page 19

Company Focus

HRNetGroup Ltd

Competitive Strengths HRnet is one of the largest Asia-based recruitment players in

Asia Pacific (ex-Japan) and enjoys certain competitive

advantages over its peers.

Well positioned for growth, focused on Asian growth cities.

HRnet group is located in 10 Asian growth cities – Singapore,

Kuala Lumpur, Bangkok, Hong Kong, Taipei, Guangzhou,

Shanghai, Beijing, Tokyo and Seoul. Its focus is on Asian

growth cities with high level of commercial activities and job

opportunities, large and growing population with large labour

force and young population demographics. Complementary

business between professional recruitment and flexible

staffing segment helps position HRnet to capture both ends of

the recruitment segment.

Strong and diversified customer base. HRnet has a strong and

diversified customer base. It serves over 2,000 clients including

104 Fortune 500 companies. Clients include large MNC

customers, to public listed firms to small and medium

enterprises (SMEs). Key customers include Samsung Asia,

Master Kong Holdings, Bundwealth, Seibu Holdings, Olympus,

Fubon Bank, Gardens by the Bay and Acer. Its top 5 and 10

clients collectively account for 14.1% and 20%, respectively,

of the Group’s revenue in 2016. HRnet serves a diverse mix of

industry sectors, with no more than 16% concentration (by

revenue) to any one industry sector.

Leading player in Singapore. HRnet is a leading player in

recruitment in Singapore. According to Frost & Sullivan, the

Group has the highest revenue and net profit derived from

Singapore amongst its peers, the most number of consultants

in Singapore, and higher net profit per employee amongst

recruitment players in Singapore. It enjoys home-ground

advantage due to its economies of scale, established presence,

strong sales force, client base, market reputation, as well as its

financial strength.

Economies of scale. With offices across 10 Asian cities, HRnet

is able to leverage on its client, candidate and staff network to

attain synergies. Its depth of candidate pool and physical

presence across the region is able to support the needs of

MNCs in their recruitment needs regionally compared to

smaller recruitment agencies which have limited candidate

pool and physical presence.

Structured for high productivity and efficient operations.

HRnet has established a corporate structure conducive for

growth. Productivity of sales employees is measured based on

gross profits and those employees whose gross profits are 3

times their fixed salary would typically receive significant

additional remuneration in the form of variable profit sharing

incentives. Productive headcount performance and sales

target matrices are implemented and tracked across the board

and help is given to staff who require assistance to meet their

performance targets.

Regional offices are structured as sales offices and their

function is mainly to fill jobs vacancies with candidates.

Support functions are centralised in Singapore to achieve

operational economies of scale. With minimal support

functions in each overseas office, overseas offices can

concentrate on achieving their sales targets and HRnet has

minimal risk of management buyout from key personnel in

those offices. Reward systems for employees involve an

entrepreneurial co-ownership business model which aligns the

staff to achieve profitability as well.

Extensive experience and proven track record. HRnet has had

strong growth and profitability since inception. Its 24-year

(1992-2016), 10-year (2006-2016), and FY2014 to FY2016

CAGRs for revenue are 31.3%, 12.7%, and 6.1%

respectively. Its 24-year, 10-year, and FY2014 to FY2016

CAGRs for net profit are 40.3%, 14.7%, and 12.9%

respectively. This has been achieved through strong

relationship with customers, diversified business model across

professional recruitment and flexible staffing, and strategic

expansion across Asian growth cities.

Resilient business. HRnet has remained relatively resilient and

profitable throughout crisis years of 1) 2000 dot-com crash; 2)

11 September 2001 terrorist attacks; 3) 2003 SARS (Severe

Acute Respiratory Syndrome) crisis; and 4) 2008 global

financial crisis (“GFC”). According to management, the

company has been profitable every year since 1998, thanks to

the entrepreneurial co-ownership business model that

promotes productivity, profitability and a lean cost structure.

Page 20

Company Focus

HRNetGroup Ltd

Revenue trend for the past 24 years (S$m)

24yr CAGR (1992-2016), 10yr CAGR (2006-2016)

Source: Company

Net Profit trend for the past 24 years (S$m)

24yr CAGR (1992-2016), 10yr CAGR (2006-2016)

Source: Company

Page 21

Company Focus

HRNetGroup Ltd

Reward system based on profit sharing. HRnet adopts a profit

sharing system as opposed to paying commissions. This has an

impact on the profitability of the business as focus is directed

to:

1) gross profits instead of market share;

2) cost effectiveness instead of budget spend;

3) increasing the proportion of Productive Headcount (PHC);

4) business unit profitability as opposed to individual sales

achievement;

5) ratio of sales headcount relative to business support

headcount;

6) span of control in terms of leader to consultant ratio

(whereby a higher span of control results in a higher

number of consultants that a leader controls and

accordingly, a flatter and leaner organisation structure);

7) stringent and transparent tracking, monitoring, audit and

review of operational activities;

8) strong sense of accountability in terms of individual and

team activities and profitability; and

9) long term business sustainability through deliberate effort

in quality delivery and trust building.

Diversified branding catering to differing needs. HRnet has 10

brands under its portfolio, each serving a different market or

segment of customers. The various brand positioning allows it

to reach out to different segments of the market as well as

attract various calibre of candidates for successful job

placements. Consultants with specific skill sets may also

specialise with particular brands to better fulfil their

productivity and performance targets.

Different brands to target different segments

Brand Description Singapore Kuala

Lumpur

Hong

Kong

Taipei Beijing Shanghai Tokyo Seoul

Bangkok

Guangzhou

HRnetOne Talent acquisition,

retention,

management and

development

✔ ✔ ✔ ✔ ✔ ✔ ✔ ✔

Recruit Express Permanent,

contract and

temporary roles

✔ ✔ ✔ ✔ - - - -

PeopleSearch

PeopleFirst

Success-based

search for middle

to senior level

positions

✔ ✔ ✔ ✔ - ✔ ✔ -

SearchAsia Premium & tailored

recruitment

services

✔ - ✔ ✔ - - - -

RecruitFirst Flexible staffing

and professional

recruitment

✔ - ✔ - - - - -

HRnet

Performance

Consulting

Consultancy

services and

training

✔ ✔ - - - - - -

Recruit Legal Staffing for legal

sector ✔ - ✔ - - - - -

YesPay! HR and payroll

solutions ✔ - - - - - - -

Young Talent Flexible staffing - - - ✔ - - - -

Source: Company, DBS Bank

Page 22

Company Focus

HRNetGroup Ltd

Growth Strategies 1) Ride on growth in current markets, eg North Asia where

market is also fragmented

Opportunities in North Asia markets. Asia presents

opportunities for growth, particularly in North Asia. The size

of the recruitment market in North Asia (Hong Kong, Taiwan,

PRC, Japan and South Korea) far outstrips the rest of Asia.

Frost & Sullivan estimates that for 2016, North Asia accounts

for 72.6% of the S$175.4bn recruitment market (by revenue)

in the Asia Pacific region. The North Asia recruitment market

is also highly fragmented, which provides room for growth

companies like HRnet to penetrate as local skill shortages on

the back of growing economies will drive professional

recruitment services. There are plans to expand its consulting

force in North Asia.

Job opportunities to improve on the back of improving GDP in

Singapore. Based on our analysis, there is a strong correlation

of 0.9 between GDP growth and job vacancy growth. With

GDP expected to grow at a slightly faster pace of 2.8% for

2017 based on DBS economics desk’s forecast (vis-à-vis 2% in

2015 and 2016), we expect job vacancies growth in Singapore

to improve. This should bode well for the Group.

Asia Pacific recruitment market size of S$175.4b (by

revenue) for 2016

Source: Frost & Sullivan, DBS Bank

Strong correlation of 0.9 between GDP growth and job

vacancy growth in Singapore

Job vacancies in Singapore

Source: Ministry of Manpower, DBS Bank Source: Ministry of Manpower, DBS Bank

Expands into new markets, operating leverage. HRnet has

developed a stable and robust operating platform, a network

of strong relationships and a strong reputation in Singapore.

Centralised office functions will enable nimble geographic

expansion of sales functions and minimise the need for

support personnel and allow HRnet to launch expansion into

new cities with PHCs of existing offices. Relationships with

MNCs with regional corporate headquarters can be leveraged

to generate marketing opportunities overseas as well.

Expands into new specialisation for high-demand sector

niches. With the on-going changes in the economy, the

Group’s management is also looking to expand into new

specialisation particularly for high-demand sector niches

within specialisation that it has focused on. This allows

management to channel its resources on its strong domain

knowledge and build on its sector subject matter expertise.

For instance, retail, hospitality, healthcare life science sectors

in Japan. HRnet is strong in the healthcare life science sector

in Japan, with the sector being the largest revenue contributor

for HRnet’s Japan revenues in FY16. Japan’s rapidly ageing

population is driving growth in the life sciences market.

According to data from CEIC, there were 34.9m people aged

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

% y-o-y'000Job vacancies (LHS) Y-o-Y chg % (RHS)

-20%

-10%

0%

10%

20%

30%

40%

50%

-10

-5

0

5

10

15

20

25

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

% y-o-y%GDP (LHS) Job vacancies chg (RHS)

North Asia73%

Rest of Asia26%

Singapore1%

Page 23

Company Focus

HRNetGroup Ltd

65 and above as of March 2017, accounting for 27% of

Japan’s 127m population. And, this is predicted to increase to

over 30% by 2025 and to 40% by 2055 according to Japan’s

government data. Japan is the third largest market in the

world by healthcare expenditure in 2014 at US$470b, behind

USA (US$3t) and China (US$575b) according to data by World

Health Organisation. Job opportunities exist in Japan for

healthcare services, products, R&D, devices, innovation,

pharmaceutical, equipment, and medical trials, supporting the

labour market in this sector. The upcoming Tokyo Olympics is

expected to also drive demand for jobs in Tokyo for the

hospitality, retail, industrial and construction sectors.

Acquires new clients. There are also plans to win new

customers across Asia as it expands regionally especially North

Asia. HRnet should be better placed to serve more MNCs and

local clients as it expands its candidate pool and cultivates

effective and productive local talents over time. The target is

to serve a good mix of international MNC customers,

domestic and regional customers as the business units

matures.

2) Improve staff productivity

Increase PHC. Productive Headcount (PHC) refers to sales

personnel who achieve gross profit of at least 3x (three times)

of their fixed salary; and non-sales personnel who have

achieved at least 80% of their annual key performance

indicators. As of 2016, HRnet Group’s PHC for sales personnel

is 62.7% of its total number of permanent sales employees. It

targets to achieve 80% over time which will have a positive

impact on profitability.

62.7% of sales personnel headcount is productive; aims to

improve

2016 PHC* HC* PHC/HC (%)*

Singapore 227 334 68.0

North Asia 186 313 59.4

Rest of Asia 40 76 52.6

Total 453 723 62.7

PHC – Productive Headcount, HC – Headcount of HRnet’s permanent

sales employees

*Note: Based on the average of the relevant number or percentage,

as the case may be, at the beginning and the end of the financial year

Source: Company IPO Prospectus, DBS Bank

Productive headcount for sales employees has increased over

the years

Source: Company, DBS Bank

Co-ownership model and incentive programmes. The Group is

extending its co-ownership model with the 88GLOW and

123GROW incentive plans, which top management believes

will aid in the overall productivity for the Group and drive

better operating performance, thereby contributing to the

Group’s growth.

Both 88GLOW and 123GROW incentive programmes were

developed to reward employees. The 123GROW Plan has

allowed about 400 employees to become shareholders and

co-owners of HRnet. The 88GLOW Plan also serves to

motivate existing co-owners to inspire employees to become

PHCs. These incentive plans are aimed to drive productivity

and align employee interests.

88GLOW Plan. This plan was implemented whereby business

leaders who have shares or interests in HRnet’s operating

subsidiaries or branches will be given the opportunity to

continue to own these shares or interests, together with an

opportunity to swap their illiquid stakes in the operating

subsidiaries or branches for shares in HRnet based on the

relative valuations of the operating subsidiaries or branches at

the relevant time of the swap. This model of co-ownership

aligns the interests of these employees with that of HRnet and

motivates them to ensure the continuing success of HRnet as

a whole.

The total shares issued under the 88GLOW Plan to these co-

owner employees will be capped at 20% of the total shares of

HRnet. The salient points of the 88GLOW Plan is summarised

in the table below.

Page 24

Company Focus

HRNetGroup Ltd

123GROW. 123GROW is a share plan initiative to replace

HRnet’s Loyalty Fund Scheme (which was the loyalty incentive

scheme for employees that was implemented in 2002,

whereby each subsidiary of HRnet sets aside an amount to be

treated as a contribution into a pool of funds (the “Loyalty

Fund”) for the benefit of its employees). Based on the annual

performance of the individual employees, job grades, and

roles they play, the Executive Directors, Peter Sim and JS Sim,

will determine whether to award, and the amount to be

awarded, to each of the employees (the “Loyalty Fund

Credits”), which are essentially a form of cash bonus

entitlements given to the eligible employees.

With the implementation of the 123GROW Plan, eligible

employees were able to use their Loyalty Fund Credits to

subscribe for Shares during HRnet’s IPO. There are three

distinct components to the 123GROW Plan, where the (1)

Opportunity One Plan (OPP1) and (2) Opportunity Two Plan

(OPP2) are one-off schemes, while (3) HRnet GROW is a

longer term on-going employee share incentive scheme. OPP1

and OPP2 were one-off plans for the purposes of the IPO and

no further employees will be invited to participate.

Page 25

Company Focus

HRNetGroup Ltd

Salients points of 88GLOW and 123GROW plans to incentivise employees and align interests

Incentive

programme

88GLOW Plan 123GROW

Opportunity One Plan (OOP1) Opportunity Two Plan (OOP2) HRnet Grow Plan

Summary Frame work for business leaders who

have existing interest in HRnet’s

operating subsidiaries or branches to

have the opportunity to swap their

minority interests for shares of HRnet.

One-off loyalty incentive scheme to

provide eligible staff to subscribe for

equity shares in the Group.

One-off loyalty incentive scheme to

provide employees who have recently

joined the Group (and participants under

OOP1 who have insufficient Loyalty Fund

Credits) to subscribe and own equity

shares.

Ongoing equity participation scheme to

incentivise eligible employees, for a

period of 10 years from inception.

Type Swap of minority interests in subsidiaries

with shares of HRnet at IPO.

Contribution matching at inception

during IPO

Contribution matching at inception

during IPO

Discretionary share award

Structure For business leaders not involved in day-

to-day operations, minority interests will

be acquired entirely for shares in HRnet.

For the business leaders involved in the

day-to-day operations of their relevant

subsidiaries, only 20% of the

participants’ minority interests will be

acquired initially (save for two business

leaders who will not be participating in

the initial acquisition), with the

remaining 80% (100% for non-

participants) of the minority interests

subject to a right of first refusal in favour

of HRnet, at specified cumulative blocks

of up to 10% annually from the third

year onwards.

Matching share award of S$1 bonus

shares for every S$1 contributed by

employees in cash and S$1 contributed

by loyalty fund credits to subscribe for

shares.

Matching share award of S$1 bonus

shares for every S$2 contributed by

employees

Matching share award ratio and vesting

period determined by sole discretion of

Administrative Committee. Satisfied in

cash or apply available credits in the

Loyalty Fund to offset amount. Shares

issued via new or treasury shares.

Participants allowed to subscribe in cash.

Source: Company, DBS Bank

Page 26

Company Focus

HRNetGroup Ltd

Continued: Salients points of 88GLOW and 123GROW plans to incentive employees and align interests

Incentive

programme

88GLOW Plan 123GROW

Opportunity One Plan (OPP1) Opportunity Two Plan (OPP2) HRnet Grow Plan

Participants 22 business leaders and co-owners with

minority shareholding in specific

subsidiaries

Over 400 employees. Invited staff, if management at its sole

discretion, believe that such employees

can contribute to HRnet in a manner

similar to the employees eligible to

participate in in OOP1. In addition,

OOP1 participants who have insufficient

Loyalty Fund credits to maximise their

subscription under OOP1 will be eligible

to participate in OOP2.

At the Administrative Committee/GROW

committee’s absolute discretion (Peter

Sim, JS Sim, Adeline Sim) which reports

to the Remuneration committee.

Investment shares n/a Opportunity to subscribe for new shares,

but not less than 1 month’s salary and

up to a maximum of two, four or six

months’ basic salary depending on job

grade. Such subscription to be satisfied

in cash.

Opportunity to subscribe for new shares,

but not less than 1 month’s salary and

maximum of salary cap. Such

subscription to be satisfied in cash.

n/a

Loyalty shares (for

OOP1), Buy-in

Shares for (OOP2)

n/a Participants’ Loyalty Fund Credits equal

to Opportunity 1 investment amount will

be released to participant to subscribe

for the loyalty shares.

OOP2 buy-in shares, opportunity to

subscribe for additional shares on top of

OOP2 investment shares. Subscription

may be cash or by utilising remaining

loyalty fund credits if any.

n/a

Bonus shares n/a S$1 bonus share award for every S$1 of

OOP1 Investment Shares which vest in 3

equal tranches (33 Scts per year) over

the next 3 years. Number of shares

determined at inception. Must qualify as

PHC for each relevant year.

S$1 bonus new share award for every

S$2 of the OOP2 investment shares and

OOP2 Buy-in Shares in 3 equal tranches

(33 Scts per year) over the next 3 years.

Number of shares determined at

inception. Must qualify as PHC for each

relevant year.

n/a

Source: Company, DBS Bank

Page 27

Company Focus

HRNetGroup Ltd

Continued: Salients points of 88GLOW and 123GROW plans to incentive employees and align interests

Incentive

programme

88GLOW Plan 123GROW

Opportunity One Plan (OPP1) Opportunity Two Plan (OPP2) HRnet Grow Plan

Impact on P&L if

fully subscribed

Lower minority interest with acquisition

of shares.

Charge on P&L for the bonus shares over

vesting period of 3 years assuming

shares are fully subscribed. Write-back

on P&L should staff fail to qualify as PHC

or leaves HRnet to receive future bonus

shares entitlement.

Charge on P&L for the bonus shares over

vesting period of 3 years. Write-back on

P&L should staff fail to qualify as PHC or

leaves HRnet to receive future bonus

shares entitlement.

<10% discount. Employee pays cash and

matching share is expensed in P&L if

securities are purchased for delivery

Moratorium No lock up for shares below S$1m. On

every anniversary, the moratorium

amounting to a value of S$1m will be

lifted.

6 months for investment shares,

staggered moratorium released in 3

equal tranches over 3 years for loyalty

shares (can sell immediately after annual

release), no moratorium for bonus

shares

6 months for investment shares,

staggered moratorium released in 3

equal tranches over 3 years for Buy-in

Shares (can sell immediately after annual

release), no moratorium for bonus

shares

Subject to vesting period determined by

Administrative Committee.

Post

implementation

dilution

n/a n/a n/a Maximum number of share awards shall

not exceed 15% of the total number of

issued shares on the date preceding the

date of award, for a maximum period of

10 years.

Upon staff ceasing

employment

1 year non-compete obligation. 2 years

if incentive shares are above $1m.

Will continue to receive loyalty shares for

3 years from inception but bound by

moratorium. Loses future bonus

component upon leaving HRnet.

Loses future bonus component upon

leaving HRnet.

Unvested award shares will lapse if

employment ceases before vesting

period expiry.

Source: Company, DBS Bank

Page 28

Company Focus

HRNetGroup Ltd

3) Inorganic growth

Further growth through acquisitions and partnerships. HRnet

is looking to grow through acquisitions and partnerships to

strengthen its position in existing markets or to enter into new

ones. In particular, acquisitions will alleviate the need to clear

regulatory requirements, and allow for HRnet to scale much

faster with the targets’ existing resources. In partnerships, it

could co-operate with other players with stronger localised

knowledge, deeper experience and track record, or specific

specialisations.

Looking at growth cities, and North Asia. In view of the

stronger market opportunities in North Asia, we believe

management would be looking towards the key growth cities

for such initiatives.

Acquisitions and partnerships; Signed Capital and Business

Alliance Agreement with TechnoPro Holdings. In terms of

market entry, the Group would be looking at acquisition or

partnership with existing players. For markets/ cities in which

they are already present in, it plans to explore acquisitions and

partnerships in complementary business areas. In fact, the

Group has on 31 July 2017, signed a Business and Alliance

Agreement with TechnoPro Holdings, Inc. to explore co-

investments, JVs and M&As, etc.

In terms of the acquisition of stake, the Group would review

in terms of the target size and scale. For targets that are

smaller in size relative to the Group, we understand that it

intends to acquire a majority stake and to require the existing

management to continue to be minority shareholders in the

business. For targets that are similar or larger in size relative to

the Group, it intends to acquire at least 20% shareholding

interests in such acquisition targets and to collaborate in

mutual areas of interest.

The Group also intends to preserve the brands and existing

operations, but will provide its infrastructure, systems and

processes for selective adoption by the targets, as set out in

the table below.

HRnet’s six elements for selective adoption by targets

Elements Description

Leading practices Comprise business leadership, operational

leadership and people leadership;

Cultural

conditioning

Ensure values of wellness, discipline,

diligence, integrity and to promote a sales

culture;

IT platform Comprise Integrated Executive Search (IES)

system, Integrated Human Resources

Solutions and SAP Business One systems;

HR services Comprise profit sharing mechanism,

performance management system and

recognition and awards system;

Finance systems

and processes

Tracking of business processes, review and

action items as well as business partnering;

and,

Compliance and

internal controls

Ensure regulatory compliance, provide legal

support and ensure internal controls

Source: Company

.

Strategic acquisition and partnership criteria

Description

Mode of entry Existing cities/ markets – partnerships, acquisitions complementary to existing business New markets – acquisition or partnership with existing players

Criteria Flexible staffing business – at least 1,000 contractors in one location, with presence in first tier city in

China or Japan;

Professional recruitment business – at least 30 consultants in one location, and with presence in first

tier Asian growth cities or cities in which the Group has a presence in;

Acquisition is earnings accretive and to contribute to the Group’s earnings, and return on capital

employed should be above industry average.

Size Target smaller versus Group – majority stake, with existing management remaining as minority shareholders and co-own business. Similar or larger in size versus Group – at least 20% shareholding interest, collaborate with target in mutual areas of interest.

Post-acquisition integration Preserve brands and existing operations that has served it well, and provide Group’s infrastructure, systems and processes.

Source: Company, DBS Bank

Page 29

Company Focus

HRNetGroup Ltd

Management composition

Led and managed by the Group founder and his family. HRnet

is led by founder Mr Peter Sim, with certain members of his

family in key management positions. Mr Peter Sim is jointly

supported by Mr JS Sim as executive director, who is his

brother and Ms Adeline Sim, who is an executive director and

his daughter. They are in turn supported by a team of

management professionals who have had experience in

managing various functions/divisions of HRnet in the past.

Focus on growth cities. HRnet’s strategy is to grow in North

Asia and has a near term target to build its presence in cities

with large enough labour markets, including China and Japan.

There are also plans to grow through M&A, focusing on

targets with flexible staffing of 1,000 contractors in first tier

cities in Japan and China and professional recruitment firms

with >30 consultants in first tier Asian growth cities it is

currently not present in.

Key Management Team

Name and appointment Profile

Mr. Peter Sim

Founding Chairman

Mr. Peter Sim has more 40 years of experience in social work, HR functions and the recruitment

industry. He has previously worked for Housing Development Board, McDermott South East Asia Pte

Ltd, Monetary Authority of Singapore, Singapore Aerospace Pte Ltd, Metal Box Singapore Ltd,

Thomson Consumer Electronics Pte Ltd, Honeywell SEA Pte Ltd in various HR roles. He founded

HRnetOne in 1992 and has been directing, controlling and overseeing its business development,

management and operations since. Peter Sim graduated with a Bachelor of Arts from The University of

Singapore in 1976. and is an associate of the Institute of Chartered Secretaries & Administrators, UK.

Mr. JS Sim

Executive Director

Mr. JS Sim is responsible for directing and controlling the operations of the Recruit Express Entities and

the SearchAsia Entities. He held HR roles at Aurora Products Pte Ltd, General Electric Intersil Pte Ltd,

and Motorola Electronics Pte Ltd. From 1998 to 2002, he was general manager of Recruit Express and

CEO of Recruit Express in 2002. JS Sim graduated with a Bachelor of Science from the National

University of Singapore.

Ms. Adeline Sim

Executive Director

Adeline Sim leads the corporate strategic and tactical legal initiatives for HRnet, including the

development of corporate policies, procedures and programmes, and serves as the key legal advisor,

providing continuing counsel and guidance on legal matters and the legal implications for all

transactions, obtaining and overseeing the work of external counsel where required. Since August

2015, she has also overseen the newly established digital marketing and communications function of

our Group. Adeline Sim began her career as a lawyer with Drew & Napier LLC in 2004. She graduated

with a Bachelor of Law from the National University of Singapore in 2003 and was admitted to the

Singapore Bar in 2004, and was a Solicitor of the Supreme Court of England and Wales since 2006.

Ms. Jennifer Kang

CFO

Jennifer Kang is responsible for finance, tax, treasury and risk management functions. She has more

than 27 years of experience in auditing, accounting, taxation, mergers & acquisitions, business

development and financial management with Coopers & Lybrand’s, AT&T Singapore Pte Ltd, Ossia

International Ltd, BIL International Ltd, Abacus International Pte Ltd. She joined HRnet as finance

director in 2003 and held roles of country manager of PeopleFirst, strategic operations director of

HRnetOne, and co-pioneered HRnetOne in Beijing. She graduated with a Bachelor of Accountancy

from National University of Singapore in 1989. She also received a Master of Business in Information

Technology degree from RMIT University in 1998.

Source: Company, DBS Bank

Page 30

Company Focus

HRNetGroup Ltd

Name and appointment Profile

Ms. Daisy Tan

CPO

Daisy Tan is CPO in charge of human resources functions responsible for leading the development and

execution of human capital strategies in furtherance of the overall business plan of the HRnetOne and

PeopleSearch brands of the Group. Daisy started her career in 1990 as a personnel assistant in AT&T

Consumers Products Pte Ltd. She then joined Fansida Far East Pte Ltd as a sale executive. In 1992, she

joined our Group as a recruitment and account officer and went on to hold various positions in

HRnetOne, including senior regional consultant and business services manager. In 1996, she provided

operational support, including human resource services, business operating procedures and payroll

services in the start-up of the Recruit Express brand. In 2006, she assumed a business role as regional

resourcing manager, a role which evolved to that of team leader for HRnet Performance Consulting

(Singapore), before being deployed to HRnetOne as senior regional human resource manager. She was

promoted to human resource director in 2007 before being promoted to CPO in 2012. She obtained a

Diploma in Human Resource Management from the Singapore Institute of Human Resource

Management in 1995 and also received a Diploma in Business Efficiency & Productivity (Marketing &

Sales Management) from the National Productivity Board Institute for Productivity Training in 1991.

Mr Lorencz Tay

Group MD PeopleSearch

Lorencz Tay is group managing director of PeopleSearch Entities, and is responsible for directing and

controlling the operations its subsidiaries in Singapore, Hong Kong, Taipei, Shanghai and Tokyo.

Lorencz Tay started his career in 1993 as a recruitment and account officer of HRnetOne before

becoming division director, consulting director, managing consulting director, group business leader

and managing director. He also co-pioneered Taiwan and Japan businesses for the HRnetOne brand,

and Taiwan, Japan and Hong Kong for PeopleSearch brand. He graduated with a Degree of Bachelor

of Arts from the National University of Singapore in 1993.

Ms Madeline Wan

Senior general manager of

HRnetOne Entities, Greater China

and Japan business for HRnetOne

Group

Madeline Wan is managing consultant and group business leader of the businesses of Greater China

and Japan for HRnetOne Group, responsible for directing and controlling the operations and bottom-

line of such entities in Hong Kong, Taipei, Guangzhou, Beijing, Shanghai and Tokyo. She has held

positions of consultant, senior consultant, principal consultant and consulting manager, senior principal

consultant and consulting director, managing consultant and senior general manager and has been

responsible for Taiwan, Hong Kong, Shanghai, Beijing, Guangzhou and Japan businesses. Madeline

Wan started her career with Owl International Pte Ltd, She graduated with a Diploma in Chemical

Process Technology from the Singapore Polytechnic in 1992.

Source: Company, DBS Bank

Page 31

Company Focus

HRNetGroup Ltd

Management structure

Source: Company, DBS Bank

Board of directors

Name Age Experience/Position

Peter Sim 63 Founding Chairman (for description, see table on “Key Management Team” above)

JS Sim 58 Executive Director (for description, see table on “Key Management Team” above)

Adeline Sim 36 Executive Director (for description, see table on “Key Management Team” above)

Sin Boon Ann 58 Lead Independent Director. Drew & Napier LLC - Deputy Managing Director, Corporate and Finance

Department, co-head of capital markets practice.

Bachelor of Arts and Bachelor of Laws from the National University of Singapore in 1982 and 1986

respectively, and a Master of Laws from the University of London in 1988. Admitted to the Singapore Bar in

1987 and was a member of the teaching staff of the law faculty, National University of Singapore from

1987 to 1992.

Member of Parliament, Tampines GRC from 1996 to 2011.

Heng Su-Ling Mae 46 Independent Director. Has over 16 years of experience working at Ernst & Young Singapore where her last

held position was senior manager.

Independent, non-executive director of Singapore-listed Ossia International Limited and Asiatravel.com

Holdings Ltd. Currently holds directorships in her family-owned investment holding companies.

Graduated with Bachelor of Accountancy from Nanyang Technological University in 1992 and is a member

with the Institute of Singapore Chartered Accountants.

Tan Ngiap Siew 63 Independent Director. Has more than 30 years of experience in the human resource industry. Previously a

regional HR director of Asia Pacific and the managing director of Rohm and Haas Company for about nine

years until 2001. Joined Parametric Technology Corporation in 2001, and worked at Eastman Chemical

Company as the regional HR director of Asia Pacific from 2003 to 2013.

Graduated with a Diploma in Management Studies from the Singapore Institute of Management in 1982,

and a Graduate Diploma in Personnel Management from the Singapore Institute of Management /

Singapore Institute of Personnel Management in 1983.

Source: Company IPO Prospectus, DBS Bank

CFO

Jennifer Kang

CPO

Dais y Tan

Founding Chairman

Peter S im

Board of directors

CEO RecruitExpress

and SearchAsia

Entities

JS S im

Group MD of

PeopleSearch Entities

Lorencz Tay

Senior GM of

HrnetOne Entities,

Greater China & Japan

Madeline Wan

General Counsel

Ade line S im

Page 32

Company Focus

HRNetGroup Ltd

IndustryOperates in a S$175bn Asia Pacific recruitment market.

According to data by Frost & Sullivan, the market size (by

revenue) for professional recruitment and flexible staffing in

FY2016 in North Asia (Hong Kong, Taiwan, PRC, Japan and

South Korea) was c.S$127.4bn, c.S$5.6 bn for Rest of Asia

(comprising Malaysia and Thailand) and c.S$1.3bn for

Singapore. These markets collectively were worth S$134b and

together with other Asia Pacific regions, the Asia Pacific

recruitment market was worth S$175bn (by revenue in 2016).

2015 key players market share

Source: Frost & Sullivan, DBS Bank

Key recruitment players in Asia Pacific

2015 Estimated Asia

Pacific Revenue

(S$m)

Market share by

revenue (%)

Estimated

APAC EBITDA

Margin (%)

Net Profit

Margin

(%)

Net Profit/Employee

based on global

operations (S$ ‘000)

Consultants as %

of total

employees

Adecco 6,028 3.8 5.3 3.2 0.5 n/a

Recruit Holdings 4,403 2.8 14.1 4.9 24.8 n/a

Temp Holdings 3,961 2.5 7.5 3.5 12.1 n/a

Manpower Group 3,576 2.2 4.2 2.3 21.1 n/a

Persona 2,800 1.8 2.9 -0.1 2.5 n/a

Randstad 2,801 1.8 4.7 2.8 25.7 n/a

Hays 1,637 1.0 4.7 2.8 14.0- 68.0%

Robert Half 1,490 0.9 11.8 6.5 30.2 n/a

TechnoPro 1111 0.7 10 7.8 5.3 n/a

Meitec 1059 0.7 13 8.7 5.9 n/a

Robert Walters 620 0.4 3.3 2 10.5 n/a

Kelly Services 273 0.2 3.3 2.2 9 n/a

PageGroup 374 0.2 9.9 6 22.8 77.2%

HRnetGroup 356 0.2 16.3 13.3 50.9 85.3%

Hudson 343 0.2 -1.1 -2.1 2 n/a

Rubicor 215 0.1 5.3 2.7 n/a

Korn Ferry 271 0.2 8.7 3.7 17.3 16.8%

Clarius 192 0.1 -1.1 -2.9 n/a

Heidrick & Struggles 123 0.1 9 2.6 14 20.6%

JAC Recruitment 170 0.1 34.8 23.6 33.5 n/a

JAC Recruitment Asia 49 0.0 8.1 3.7 n/a n/a

Others 128,148 80.1 n/a n/a n/a n/a

Market size 2015 160,000 100.0 n/a n/a n/a n/a

Key players’ average 1,517 n/a 8.3 4.6 16.9 54%

Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank

Others80%

Key players20%

Page 33

Company Focus

HRNetGroup Ltd

Fragmented, low entry barrier industry

Operates in a highly fragmented industry dominated by

international players. There are at least 14 other key

recruitment players in Singapore, many of which have an

international presence. Entry barriers to the business are

relatively low for professional recruitment and flexible staffing.

The whole industry including the smaller players compete on

service and price. Some customers especially multinational

corporations may have internal human resource department

which fulfils their staffing requirements internally, reducing

the demand for such services in the market.

Asia Pacific Recruitment market: 9.4% CAGR growth till

2021

Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank

Asia Pacific recruitment market to grow at 9.4% CAGR

The Asia-Pacific professional recruitment and flexible staffing

market is forecast to reach S$274.9bn in revenue in 2021

from S$175.4bn in 2016, growing at a CAGR rate of 9.4%.

Growth is expected to be driven by flexible staffing which is

expected to grow by 9.5% CAGR versus professional

recruitment at 9.1% CAGR.

Multiple growth drivers supporting Asia-pacific recruitment

market. Growth in Singapore is expected to be driven by IT,

finance industries, growing GDP, staff headcount increase,

tight labour market and tight policies in hiring foreign

workers. In China, the market will be led by professional,

financial services, high-tech businesses in Shanghai and

Beijing, while Guangzhou is becoming a transportation,

trading financial, innovation hub.

Local skill shortage, growing interest in HR services, emerging

recruitment platforms, demand for high-calibre professionals

and improving business and industrial environment will drive

recruitment market in Taiwan. High employee turnover rates,

strong employment demand from Chinese companies, and

new government policies will support recruitment growth in

Hong Kong.

The Japan market will be led by increasing retirement age,

promoting women participation in the workforce, talent

scarcity in ICT, healthcare and energy storage system sectors

and upcoming preparation for the 2020 Tokyo Olympics.

Recovery of conglomerates and automotive industries are

expected to drive the job market in Korea. Finally, the job

market will be led by construction and infrastructure sector in

Malaysia, and banking financial and IT sector in Bangkok.

Leading player in Asia-Pacific

One of the largest in recruitment agencies in Asia. According

to Frost & Sullivan, HRnet is the largest Asia-based recruitment

agency within the professional recruitment and flexible

staffing industry in Asia Pacific (excluding Japan) by various

comparative matrices including number of consultants,

revenue, net profit, and margins. In 2016, HRnet accounted

for approximately 1.1% of key players’ revenue in the Asia-

Pacific and is one of the leaders in terms of EBITDA and net

profit margin.

Asia-Pacific cities HR market to grow between 3% and 17% One of the largest HR and recruitment players in Singapore

and Asia-Pacific

5 year CAGR

(from 2016-

2021F)

Recruitment

Services

(CAGR)

Flexible

staffing

(CAGR)

Overall

(CAGR)

Singapore 6% 4% 4%

China 20% 14% 17%

Taipei 4% 4% 4%

Hong Kong 3% 9% 7%

Tokyo 8% 11% 11%

Seoul 2% 3% 3%

Kuala Lumpur 8% 8% 8%

Bangkok 14% 13% 13%

Parameter Region Rank Note

Licenced consultants Singapore 1

Singapore only revenue Singapore 1

Singapore only net profit Singapore 1

Net profit per employee Asia Pac 1

NPBT/licenced consultant Singapore 1

Consultants/total employees Asia Pac 1

EBITDA margin Asia Pac 2 Behind JAC

Net profit margin Asia Pac 2 Behind JAC

Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank

Page 34

Company Focus

HRNetGroup Ltd

Leads industry in profitability

Strong profitability regionally. HRnet leads regional

competitors in productivity and profitability. According to

Frost & Sullivan, HRnet’s net profit per employee, net profit

margin, EBITDA margin and proportion of consultants to total

employees is one of the highest amongst its regional peers.

Led by competitive advantage. HRnet’s strong position can be

attributed to its economies of scale in managing its cost base,

comprehensive support functions to allow consultants to

focus on generating revenue, branding to attract high calibre

candidates, balance sheet to support payroll requirements of

customers with high flexible staffing needs and regional reach

to support MNCs across multiple locations.

Highest net profit per employee in 2016 (based on global

operations)

Proportion of consultant to total employees

Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank

EBITDA margin of players with Asia Pacific presence* Net profit margin of key players with presence in Asia

Pacific*

Note:

*Based on financial statements for 12 months ended 31 December

2016, save for financial statements of Persona which are for the

12 months ended 28 February 2017, the financial statements for

Korn Ferry which are for the 12 months ended 31 January 2017

and the financial statements for JAC Recruitment Asia which are

for the 12 months ended 31 December 2015.

Note:

*Based on financial statements for 12 months ended 31

December 2016, save for financial statements of Persona which

are for the 12 months ended 28 February 2017, the financial

statements for Korn Ferry which are for the 12 months ended 31

January 2017 and the financial statements for JAC Recruitment

Asia which are for the 12 months ended 31 December 2015.

Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank

16%

8%5%5%

3%

10%

3%5%4%

35%

8%9%9%

-1%

12%14%13%

10%

3%5%

-1%-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

13.3%

3.5%2.8%3.2%2.2%

6.0%

2.0%2.8%2.3%

23.6%

3.7%3.7%2.6%

-2.1%

6.5%4.9%

8.7%7.8%

-0.1%

2.7%

-2.9%-5%

0%

5%

10%

15%

20%

25%

57.8

12.1

27.833.1

21.822.8

11.5

27.121.9

60.7

6.111.7

28.9

19.4

10.36.7

0.30

10

20

30

40

50

60

70S$m

85.3%

77.2%

68.0%

16.8%20.6%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

HrnetGroup PageGroup Hays Korn Ferry Heidrick &Struggles

Page 35

Company Focus

HRNetGroup Ltd

Dominant in Singapore

Highest number of licensed consultants in Singapore.

Singapore is HRnet’s headquarters location and HRnet has the

largest pool of licensed consultants (approved by Singapore’s

Ministry of Manpower) in Singapore, close to double the

number of consultants over its nearest competitor. This has

translated into the highest revenue and net profit before tax.

This has also resulted in highest revenue and net profit return

per licensed consultant in Singapore.

Highest number of licensed consultants in Singapore 2016 Highest NPBT per licensed consultant in 2016

Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank

Highest revenue derived from Singapore only in 2015 Highest NPBT in Singapore in 2015

Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank Source: Frost & Sullivan, Company IPO Prospectus, DBS Bank

Note: Temp Holdings’ matrices are based on Capita Pte Ltd, which is a

wholly owned subsidiary of Temp Holdings operating in Singapore

Page 36

Company Focus

HRNetGroup Ltd

Key Risks Economic downturn and business cycle. The demand for

recruitment services are contingent on the requirements and

availability of employment positions. This, in turn, is affected

by the economic conditions in the regions and sectors the

Group is servicing. For instance, according to Singapore’s

Ministry of Manpower, total employment grew by only 8,600

in 2016. This compares against an annual average of 120,000

total employment between 2010 and 2014. The main reasons

cited were the cyclical weakness as well as structural trend

due to demographics. In 2016, GDP growth for Singapore

registered 2%, following the same rate as 2015, but lower

than 2014’s 2.9%.

Annual employment change in Singapore (‘000)

Source: Ministry of Manpower, DBS Bank

Competition, given relatively low barriers to entry. While the

Group has certain competitive edge such as its scale and size,

the barriers to entry in the professional recruitment services

industry is relatively low. Also, given the fragmented nature of

the industry, potential entry of new players in the markets

that the Group operates may increase competition for the

Group and other existing players. This could result in price

cutting pressure from the new or existing players.

Loss of licence, reputation. HRnet operates in a regulated

environment and holds licences to operate employment

services and agencies in the various markets in which it

operates. Operations of such agencies are subject to

employment legislation of each country. These include labour

laws, minimum wage, provident fund regulations, work injury

compensation, foreign manpower laws, employment services

regulation. Failure to comply with the relevant laws could

result in fine, demerit points, or loss of licence.

Relevant laws governing HRnet’s operations in various

markets

Jurisdiction Laws and regulations

Singapore Employment Act

Employment Agencies Act and Employment

Agencies Rules 2011

Tripartite Guidelines on Fair Employment Practices

Personal Data Protection Act

Employment of Foreign Manpower Act

Employment of Foreign Manpower (Work Passes)

regulation

Central Provident Fund Act

Work Injury Compensation Act

Hong Employment Ordinance

Kong Personal Data (Privacy) Ordinance

Minimum Wage Ordinance

Employees’ Compensation Ordinance

Occupational Safety and Health Ordinance

Mandatory Provident Fund Schemes Ordinance

Japan Labor Standards Act

Labor Contract Act

Employment Security Act

Worker Dispatch Act

Act on the Protection of Personal Information

PRC Regulations relating to Human Resource Service

Regulations relating to Intellectual property rights

Regulations relating to Privacy and data protection

Regulation of Labour Laws and Social Insurance

Regulations relating to Dividends Distribution

Taiwan Regulation of Labour Standard Act

Employment Services Act

Regulation of Managing and Supervising Private

Employment Services Institution

Personal Information Protection Act

Source: Company, DBS Bank

Departure of key performers/consultants. Consultants

generate sales for HRnet by matching and placing out suitable

candidates to its clients. Consultants with good and consistent

track record (of PHC status) will be able to contribute to

growth. Departure of these consultants to competitors or loss

of key performers through retirement or career change could

impact the company’s ability to grow going forward. The

purpose of the 88Glow and 123Grow plans is to create an

incentive system where employees can enjoy a share of the

success in HRnet.

Risks of inorganic growth initiatives. Management intends to

utilise its internal funds as a war-chest for inorganic

acquisitions and/or strategic alliances, particularly in North

Asia, to supplement its growth profile. However, such

initiatives carry certain level of risks and uncertainties and may

not turn out as originally envisaged.

0

50

100

150

200

250

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Number '000

Page 37

Company Focus

HRNetGroup Ltd

Rise in use of technology and disruption. While the rise of

technology can be an enabler in efficiency and productivity,

the rapid pace of technological development and pervasive

use of new media could potentially cause disruption and

challenges to the recruitment industry. New technologies may

emerge and have the effect of replacing or as the case may

be, have a disruptive impact on certain parts of the Group’s

works and processes and demands for human labour.

Cessation of Singapore government grants and credit

schemes. The Group has enjoyed government grants and

subsidies amounting to S$4.4m, S$8.1m and S$11.4m,

respectively for FY14, FY15 and FY16. The Singapore

government has extended the length of these credit schemes

and grants, with the wage credit scheme covering 2016 to

2017 and the special employment credit scheme and

temporary credit scheme extended to 2019. Beyond this,

there is no certainty to the continuation and terms of these

schemes. As such, financial performance of the Group may be

reduced if these government grants and credits were to cease.

Singapore Government Grants’ contribution to EBIT

S$m FY14 FY15 FY16

Gov’t grants, subsidies, rebates 4.4 8.1 11.4

EBIT 45.6 50.5 58.8

% of EBIT 9.5 16.0 19.4

Source: DBS Bank’s estimates, Company

Page 38

Company Focus

HRNetGroup Ltd

Summary of Singapore Government Grants – Wage Credit, Special Employment Credit and Temporary Employment Credit

Government grants Purpose Credits Duration and credit

Wage Credit Scheme

– Introduced at

Singapore Budget

2013, extended at

Singapore Budget

2015

To help co-fund wage

increases for

Singaporeans earnings

gross monthly wage of

up to S$4,000

Singapore Government co-fund wage

increases for Singaporean employees’

earnings gross monthly wage of up to

S$4,000

Co-funding of 40% wage increases from

2013 to 2015, with a minimum of $50

per month wage increase.

Extended to 2016 and 2017 but at a

lower level of 20% co-funding

Special Employment

Credit Scheme –

Introduced at

Singapore Budget

2011 and further

enhanced in 2014,

2015, 2016 and 2017

Singapore Budget

To encourage employers

to attract and keep older

workers

Singapore Government to offset wages of

workers aged above 55 and earning up to

S$4,000 a month

2012 to 2016 at up to 8% wage offset

2017 to 2019 at up to 8% wage offset

and an additional up to 3% offset for

workers not covered by the new

retirement age

Temporary

Employment Credit

Scheme – Introduced

at Singapore Budget

2014, enhanced at

Singapore Budget

2015 with a higher

rate

To help employers adjust

to 1% increase in CPF

employer contribution

rates which took effect in

January 2015

Singapore Government to offset wages for

Singaporean and Singapore Permanent

Resident (PR) employees

2015 to 2017

2015 at 1.0% of wages up to the CPF

salary ceiling of S$5,000

2016 at 1.0% up to the CPF salary

ceiling of S$5,000

2017 at 0.5% up to the CPF salary

ceiling of S$6,000

Source: Company, Ministry of Manpower, IRAS, DBS Bank

Page 39

Company Focus

HRNetGroup Ltd

Key Assumptions

FY Dec 2014A 2015A 2016A 2017F 2018F 2019F

Sales Headcount (HC) (#)

717 716 723 710 728 751

Productive Headcount (PHC) (#)

428 447 453 465 487 517

PHC/HC 0.60 0.62 0.63 0.65 0.67 0.69

Gross profit/ PHC (S$000's/ yr)

301 294 293 299 304 309

Segmental Breakdown

FY Dec 2014A 2015A 2016A 2017F 2018F 2019F Revenues (S$m)

Professional recruitment 85.8 86.4 87.5 92.5 98.9 108

Flexible staffing 236 267 274 303 314 334

Others 2.26 2.21 3.09 3.25 3.46 3.72

Total 324 356 365 399 416 445

Gross profit (S$m)

Professional recruitment 85.6 86.1 87.4 92.3 98.8 107

Flexible staffing 41.1 43.2 42.7 43.9 46.3 49.2

Others 1.93 1.91 2.78 2.89 3.08 3.31

Total 129 131 133 139 148 160

Gross profit Margins (%)

Professional recruitment 99.7 99.7 99.8 99.8 99.8 99.8

Flexible staffing 17.4 16.1 15.5 14.5 14.8 14.7

Others 85.1 86.5 89.8 89.0 89.0 89.0

Total 39.6 36.9 36.4 34.9 35.6 35.9

Source: Company, DBS Bank

Projecting increase in headcount with conversion of temp staff to perm staff progressively, coupled with potential acquisitions. Temp/contract staff stood at 194 as of 3Q17, vs 201 in 4Q16.

Page 40

Company Focus

HRNetGroup Ltd

Income Statement (S$m)

FY Dec 2014A 2015A 2016A 2017F 2018F 2019F

Revenue 324 356 365 399 416 445

Cost of Goods Sold (196) (225) (232) (260) (268) (285)

Gross Profit 129 131 133 139 148 160

Other Opng (Exp)/Inc (83.0) (80.7) (74.0) (84.2) (87.2) (96.8)

Operating Profit 45.6 50.5 58.8 54.9 61.0 63.1

Other Non Opg (Exp)/Inc (0.3) 0.93 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc 0.54 0.69 0.56 1.59 2.18 2.72

Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0 0.0 0.0

Pre-tax Profit 45.9 52.1 59.3 56.4 63.1 65.8

Tax (8.0) (8.8) (10.9) (10.3) (12.0) (12.5)

Minority Interest (4.6) (5.2) (7.4) (5.1) (3.3) (3.4)

Preference Dividend 0.0 0.0 0.0 0.0 0.0 0.0

Net Profit 33.4 38.2 41.1 41.0 47.9 49.9

Net Profit before Except. 33.4 38.2 41.1 41.0 47.9 49.9

EBITDA 46.9 52.7 59.6 56.0 62.2 64.4

Growth

Revenue Gth (%) nm 9.7 2.5 9.2 4.3 6.9

EBITDA Gth (%) nm 12.5 12.9 (5.9) 11.1 3.5

Opg Profit Gth (%) nm 10.7 16.4 (6.7) 11.2 3.5

Net Profit Gth (Pre-ex) (%)

nm 14.5 7.6 (0.2) 16.7 4.3

Margins & Ratio

Gross Margins (%) 39.6 36.9 36.4 34.9 35.6 35.9

Opg Profit Margin (%) 14.1 14.2 16.1 13.8 14.7 14.2

Net Profit Margin (%) 10.3 10.7 11.3 10.3 11.5 11.2

ROAE (%) 52.9 31.3 40.8 22.6 16.5 15.8

ROA (%) 34.8 20.0 22.3 15.3 12.8 12.4

ROCE (%) 46.8 27.7 35.7 21.6 16.1 15.6

Div Payout Ratio (%) 58.2 123.7 232.3 50.0 50.0 50.0

Net Interest Cover (x) NM NM NM NM NM NM

Source: Company, DBS Bank

Margins Trend

Includes IPO expenses of S$3.6m, offset by lower government grants compared to FY16

Lower Minority Interests on the implementation of 88Glow plans whereby partial interests in the operating subsidiaries were swapped into HRnet Group shares just before the IPO (at issue price).

Gross margins to retreat with higher contribution of Flexible Staffing vs Professional Recruitment.

Page 41

Company Focus

HRNetGroup Ltd

Quarterly / Interim Income Statement (S$m)

FY Dec 2Q2016 3Q2016 2Q2017 3Q2017

Revenue 91.6 91.1 97.4 97.5

Cost of Goods Sold (57.7) (57.2) (63.5) (63.1)

Gross Profit 33.9 33.9 34.0 34.4

Other Oper. (Exp)/Inc (22.1) (21.0) (22.8) (21.4)

Operating Profit 11.8 12.8 11.2 13.0

Other Non Opg (Exp)/Inc 0.0 0.0 0.0 0.0

Associates & JV Inc 0.0 0.0 0.0 0.0

Net Interest (Exp)/Inc 0.23 0.10 0.12 0.61

Exceptional Gain/(Loss) 0.0 0.0 0.0 0.0

Pre-tax Profit 12.0 12.9 11.3 13.7

Tax (2.4) (2.3) (2.4) (2.7)

Minority Interest (1.4) (1.7) (1.6) (0.3)

Net Profit 8.17 8.90 7.33 10.7

Net profit bef Except. 8.17 8.90 7.33 10.7

EBITDA 12.0 12.8 11.4 13.2

Growth

Revenue Gth (%) 2.4 (0.6) 2.2 0.0

EBITDA Gth (%) (38.1) 6.7 (27.8) 16.6

Opg Profit Gth (%) (38.4) 8.7 (28.1) 16.9

Net Profit Gth (Pre-ex) (%)

(42.0) 8.9 (34.3) 45.9

Margins

Gross Margins (%) 37.0 37.2 34.9 35.3

Opg Profit Margins (%) 12.9 14.1 11.4 13.4

Net Profit Margins (%) 8.9 9.8 7.5 11.0

Revenue Trend

Source: Company, DBS Bank Bank

Includes Govt grants such as Wage Credits

Page 42

Company Focus

HRNetGroup Ltd

Balance Sheet (S$m)

FY Dec 2014A 2015A 2016A 2017F 2018F 2019F

Net Fixed Assets 1.10 0.83 0.73 0.63 0.43 0.14

Invts in Associates & JVs 0.0 0.0 0.0 0.0 0.0 0.0

Other LT Assets 0.89 0.90 0.81 10.7 30.6 50.6

Cash & ST Invts 125 123 107 273 279 283

Inventory 0.0 0.0 0.0 0.0 0.0 0.0

Debtors 60.7 61.1 65.9 69.9 73.0 78.0

Other Current Assets 3.76 3.87 4.19 4.50 4.50 4.50

Total Assets 192 190 178 358 387 417

ST Debt

0.0 0.0 0.0 0.0 0.0 0.0

Creditor 4.74 5.26 5.70 6.13 6.32 6.72

Other Current Liab 42.1 48.2 75.4 55.3 57.0 57.5

LT Debt 0.0 0.0 0.0 0.0 0.0 0.0

Other LT Liabilities 0.0 0.01 0.01 0.01 0.01 0.01

Shareholder’s Equity 126 118 83.9 278 302 327

Minority Interests 18.6 18.7 13.3 18.4 21.6 25.1

Total Cap. & Liab. 192 190 178 358 387 417

Non-Cash Wkg. Capital 17.5 11.4 (11.0) 13.0 14.1 18.3

Net Cash/(Debt) 125 123 107 273 279 283

Debtors Turn (avg days) 34.1 62.4 63.4 62.1 62.7 61.9

Creditors Turn (avg days) 4.5 8.2 8.6 8.3 8.5 8.4

Inventory Turn (avg days) N/A N/A N/A N/A N/A N/A

Asset Turnover (x) 3.4 1.9 2.0 1.5 1.1 1.1

Current Ratio (x) 4.0 3.5 2.2 5.6 5.6 5.7

Quick Ratio (x) 4.0 3.4 2.1 5.6 5.6 5.6

Net Debt/Equity (X) CASH CASH CASH CASH CASH CASH

Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH CASH

Capex to Debt (%) N/A N/A N/A N/A N/A N/A

Source: Company, DBS Bank

Asset Breakdown

High net cash available for the pursuit of inorganic growth opportunities.

Page 43

Company Focus

HRNetGroup Ltd

Cash Flow Statement (S$m)

FY Dec 2014A 2015A 2016A 2017F 2018F 2019F

Pre-Tax Profit 45.9 52.1 59.3 56.4 63.1 65.8

Dep. & Amort. 1.51 1.30 0.82 1.20 1.28 1.29

Tax Paid (7.1) (8.3) (4.9) (12.3) (10.3) (12.0)

Assoc. & JV Inc/(loss) 0.0 0.0 0.0 0.0 0.0 0.0

Chg in Wkg.Cap. (0.3) 5.26 (2.3) (22.1) (2.8) (4.7)

Other Operating CF 0.16 (0.9) 0.42 0.0 0.0 0.0

Net Operating CF 40.2 49.6 53.4 23.3 51.2 50.5

Capital Exp.(net) (0.7) (1.0) (0.7) (1.0) (1.0) (1.0)

Other Invts.(net) 0.0 0.0 0.0 (10.0) (20.0) (20.0)

Invts in Assoc. & JV 0.0 0.0 0.0 0.0 0.0 0.0

Div from Assoc & JV 0.0 0.0 0.0 0.0 0.0 0.0

Other Investing CF (0.9) 0.23 1.58 0.0 0.0 0.0

Net Investing CF (1.6) (0.8) 0.83 (11.0) (21.0) (21.0)

Div Paid (21.9) (51.9) (84.8) (20.5) (23.9) (25.0)

Chg in Gross Debt 0.0 0.0 0.0 0.0 0.0 0.0

Capital Issues 0.0 0.0 15.0 174 0.0 0.0

Other Financing CF 0.29 (0.7) 0.36 0.0 0.0 0.0

Net Financing CF (21.6) (52.5) (69.5) 154 (23.9) (25.0)

Currency Adjustments 0.22 0.96 0.51 0.0 0.0 0.0

Chg in Cash 17.2 (2.8) (14.7) 166 6.30 4.51

Opg CFPS (S cts) 4.95 5.42 6.81 4.91 5.35 5.45

Free CFPS (S cts) 4.83 5.94 6.44 2.42 4.97 4.89

Source: Company, DBS Bank

Capital Expenditure

Page 44

Company Focus

HRNetGroup Ltd

DBS Bank recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

Share price appreciation + dividends

Completed Date: 3 Jan 2018 08:00:10 Dissemination Date: 3 Jan 2018 11:50:24

Sources for all charts and tables are DBS Bank unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank. This report is solely intended for the clients of DBS Bank Ltd, its respective connected and associated

corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)

redistributed without the prior written consent of DBS Bank.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively,

the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other

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warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without

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Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

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Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Page 45

Company Focus

HRNetGroup Ltd

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

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1. DBS Bank Ltd, DBS HK, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), DBSV HK or their subsidiaries and/or other affiliates do not have

a proprietary position in the securities recommended in this report as of 30 Nov 2017.

Compensation for investment banking services:

2. DBS Bank Ltd, DBS HK, DBSVS, DBSV HK, their subsidiaries and/or other affiliates of DBSVUSA have received compensation, within the past

12 months for investment banking services from HRNET Group as of 30 Nov 2017

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Disclosure of previous investment recommendation produced:

5. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

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1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of

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Page 46

Company Focus

HRNetGroup Ltd

Disclosure of previous investment recommendation produced

6. DBS Bank Ltd, DBS Vickers Securities (Singapore) Pte Ltd (''DBSVS''), their subsidiaries and/or other affiliates may have published other

investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

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Page 47

Company Focus

HRNetGroup Ltd

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Page 48

Company Focus

HRNetGroup Ltd

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THAILAND DBS Vickers Securities (Thailand) Co Ltd Contact: Chanpen Sirithanarattanakul 989 Siam Piwat Tower Building, 9th, 14th-15th Floor Rama 1 Road, Pathumwan, Bangkok Thailand 10330 Tel. 66 2 857 7831 Fax: 66 2 658 1269 e-mail: research@th.dbs.com Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand