2 Asset Light Companies with Return on Equity Above 15%

Companies that possess an asset light business model typically own less fixed assets as compared to the amount of revenue that generates from its business operations.

This means that they can generate significant revenue by investing a minimal capital expenditure into the business.

Therefore, this will allow them to scale up at a faster pace and expand their business rapidly, without having to worry about the amount of investment needed to achieve the scale intended.

With that in mind, we will be looking into these 2 asset light companies:

• HRnetGroup Limited (SGX: CHZ)
• PropNex Limited (SGX: OYY)

1) HRnetGroup Limited (SGX: CHZ)

HRnetGroup Limited (“HRnetGroup”) is a Singapore-based recruitment agency. The Company operates through two segments: flexible staffing and professional recruitment. It serves a spectrum of industries, including financial institutions, retail and consumer, information technology and telecommunications, manufacturing, insurance and logistics, and functions such as human resources, finance and accounting, and legal and compliance.

Financial Performance

For the trailing 12-month period, HRnetGroup’s revenue (“Blue Bar) grew by 14.9% to S$497.79 million. The topline growth was helped by both its Flexible Staffing and Professional Recruitment business segments as various Asian economics saw an economic rebound and pent-up demand from the hiring standstill in 2020.

With the improvement in its net profit margin (“Blue Line”), HRnetGroup’s profit after tax (“Green Bar”) jumped by nearly 32% to S$65.64 million.

Balance Sheet (Asset Section)

Currently, the majority of HRnetGroup’s assets are classified under cash and short-term investments (S$315.34 million) and accounts receivable (S$113.04 million). The company only owns a small portion of fixed assets (S$16.17 million), such as plant and equipment as well as right-of-use assets.

This goes to show that HRnetGroup does not require significant investment in fixed assets to operate and grow their business operations.

Management Efficiency Ratio

With the higher earnings achieved in the trailing 12-month period, both its Return on Assets (“ROA”) and Return on Equity (“ROE”) saw a significant improvement to 12.5% and 17.6% respectively.

2) PropNex Limited (SGX: OYY)

PropNex Limited (“PropNex”) is Singapore’s largest listed group with close to 10,000 sales professionals. As an integrated real estate services group, PropNex’s key business segments include real estate brokerage, training, property management and real estate consultancy.

The Group has an established presence in Singapore’s residential market, even as it continues to expand its suite of real estate services in Singapore and grow operations regionally. PropNex already has presence in Cambodia, Indonesia, Malaysia and Vietnam.

Financial Performance

For the trailing 12-month period, PropNex’s revenue (“Blue Bar”) surged by 70% to S$871.08 million. The strong jump was underpinned by the higher commission income from agency services and project marketing due to a higher number of transactions as the economy picks up.

With the continued improvement in its net profit margin (“Blue Line”), PropNex’s net profit after tax saw a surge of 85% to S$57.86 million.

Balance Sheet (Asset Section)

Like HRnetGroup, the majority of PropNex’s assets are parked under its cash and short-term investments (S$285.50 million) and accounts receivable (S$123.72 million). The company only owns a minor amount of fixed assets (S$3.26 million), such as plant and equipment as well as right-of-use assets.

Similarly, this also highlights PropNex’s ability to use minimal fixed assets on hand to operate and grow their business operations.

Management Efficiency Ratio

Both PropNex’s Return on Assets (“ROA”) and Return on Equity (“ROE”) saw a rising trend since FY2019, on back of the higher earnings achieved in the financial period.

With the continued uptrend in its earnings in the trailing 12-month period, PropNex’s ROA and ROE hit a high of 18.3% and 55.9% respectively.

Conclusion

To conclude, the above 2 companies possess an asset light business model and focus more on their human resources. Despite having a minimal amount of fixed assets in their respective balance sheet, both HRnetGroup and PropNex are generating a huge amount of revenue and profit as seen from their financial performance.

Therefore, these companies will be able to scale up their business quickly with minimal investment amount. Investors who wish to have exposure to these asset light companies could look into HRnetGroup and PropNex for a start.

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