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The three best companies to invest in this 2022: RHB

RHB used five criteria, including ESG score, in selecting the companies.

RHB listed three companies that will be best to invest in this 2022, putting emphasis on their environmental, social, and governance (ESG) score.

Three companies in Singapore were included in RHB’s list of the best companies to invest in this 2022: Frencken Group, HRnet Group, and ST Engineering.

All the three companies have a return of equity (ROE) of 15% and above; and an ESG score above the country median, amongst others.

Other criteria used by RBH include a 2022 net debt or shareholders’ funds below 0.7x; increasing margins in 2022 vs 2019; and trading below sector valuations.

For ESG score, ST Engineering had the highest at 3.4, while Frencken Group and HRnet Group were at 3.0.

The ESG country media for Singapore is 3.0.

RHB has put emphasis on the ESG score for this year’s list, saying “sustainable investment strategies will continue to deliver above-market returns.”

Meanwhile, RHB sees double-digit ROEs in all three companies, with ST Engineering having the highest forecast of 25.2% and 25.5% for FY22 and FY23, respectively.

RHB estimate Frencken’s ROE to hit 17.4% (FY22) and 16.2% (FY23), while HRNet’s is expected to reach 18.4% in FY21 and FY22.

The estimated earnings growth for Frenken was attributed to the strong improvement in its semiconductor and medical divisions, among others; while HRNet’s will be probably “driven by a robust recovery in the recruitment sector, as well as higher wages and increased operating leverage,” RHB said.

Here’s how the three companies fared in other criteria, according to RHB:

Indebtedness

STE: We expect STE’s net debt to equity to gradually decline to 0.23x by FY23F from 0.76x in FY19. Our estimates do not incorporate the TransCore acquisition, which will be debt-funded and is expected to be completed by the end of 1Q22.

HRnet: HRnetGroup has always advocated prudent cash management and maintained a net cash balance sheet since listing despite making several acquisitions. The group has also generated positive cash flows since listing.

Frencken: Frencken has maintained a sound financial position with net cash of SGD66.8m as of 30 Sep 2021. Management has always operated prudently.

Margins

Frencken: To continue holding steady around 16-17% and margins will be dependent on its product mix during the year, but we expect gross margins to hold steadily close to 17% for the next two years.

HRnet: We expect margins to improve moving forward, as we expect both professional and flexible staffing to rebound to levels stronger than what we initially anticipated for FY21.

STE: Gradual improvement in margins as businesses return to some sort of
normalcy.

Trading

Frencken: The stock is trading below sector valuation at 12.5x FY21F P/E vs 15x against its peers in Singapore.

HRnet: The stock is trading below sector valuations at 13.3x FY21F P/E vs 25x against global peers.

STE: Currently trading at 18.5x FY22F P/E amidst the expectation of strong profit growth in FY22F.

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