22Q3's deduction of non-net profit slightly increased by 2.5% compared with the same period last year, local epidemic and macroeconomic factors put pressure on the company's performance, and the relatively stable demand of head customers ensured the basic resilience of the company's operation, but there was a loss of small and medium-sized customers and potential customer demand or pressure, and the recovery situation needed to be further observed. The company's business outsourcing and flexible employment to maintain high growth are structural bright spots. It is suggested that attention should be paid to the improvement of competitive advantages brought about by subsequent acquisitions and the catalysis of relevant policies such as employment and talents.

The growth rate of performance slowed and the ratio of cash flow improved. 22Q1-3 company realized income of 10.412 billion yuan / + 25.7%, net profit of 440 million yuan / + 10.0%, deduction of non-net profit of 365 million yuan / + 8.6%, government subsidy of 98.65 million yuan (vs. 21Q1-3 86.61 million yuan) in non-recurrent profit and loss, and a high correlation between government subsidy and outsourcing business.

22Q3's single-quarter income is 3.625 billion yuan / + 27.1%, the return net profit is 117 million yuan /-9.3%, and the deduction of non-net profit is 112 million yuan / + 2.5%. The profit growth rate slows down. We judge that the reasons include: 1) the local epidemic situation of Q3 and macroeconomic factors have adverse effects on enterprise human resources services, especially recruitment demand. 2) the epidemic situation in Shanghai and other places has a lagging impact on the company's performance, the number of new Q2 customers decreased, the loss of small and medium-sized and micro customers increased, which will also affect the company's Q3 revenue. 22Q3 has strengthened its management of advances and rebates. The net operating cash flow in a single quarter was 1.032 billion yuan (vs. 22Q1/Q2-263 million), a significant improvement compared with the previous quarter. The negative net operating cash flow of 22H1 is mainly due to the realization of payment of end-of-year performance pay received by the company at the end of last year.

Outsourcing business has maintained a high growth, and the cooperative relationship between head customers is relatively stable. From a business-by-business point of view, 2022Q3's outsourcing business (outsourcing, flexible employment) continues a relatively high income growth trend, judging that the growth rate is about 30%; judging that the growth rate of compensation and welfare business income is about 10%, benefiting from the increased demand brought about by the digital transformation of customer enterprises; while traditional businesses such as personnel management maintain steady growth, judging that the year-on-year growth rate is low in single digits.

Under the background of continuous disturbance of local epidemic situation and pressure on macro-economy this year, the company's major customers have strong business resilience and stable cooperative relationship, so the company has a strong ability to resist risks, while the turnover of small and medium-sized customers in 22Q3 has increased, and the progress of follow-up recovery remains to be seen. In terms of new customer expansion, Q3 newly contracted customers account for about 70% of customers in China, and the proportion of private enterprises continues to increase.

Following the progress of the acquisition project, the decline in gross profit margin is mainly due to the structural impact. Recently, the company announced that the parties involved in the Yuanmao share acquisition project have agreed to start the process of terminating the listing of Yuanmao shares in the conversion system as soon as possible, and the transferor undertakes to do its utmost to facilitate Yuanmao shares to obtain approval from the conversion system to terminate its stock trading before December 15, and then continue to execute the transaction. Since the start of the acquisition project, synergy has initially appeared, and the company's rich customer resources have helped Yuanmao shares, and the completion of the acquisition will help to enhance the company's competitive advantage in the areas of flexible employment and business outsourcing vertical business. speed up the development of emerging business by making up for deficiencies. 22Q3's comprehensive gross profit margin (12.3%/-3.2pcts) is mainly due to the structural impact of the increase in the proportion of outsourcing business with low gross margin. The sales / management / R & D expense rates are 4.8%, 3.2%, 0.4%, respectively, compared with the same period last year.-1.5/-0.1/+0.1pcts, the scale effect continues to improve, and the "digital foreign service" strategy continues to advance.

Risk factors: the company's business outsourcing and other emerging business expansion is not as expected; the company's digital transformation is not as expected; the risk of changes in industry policies and regulations; macroeconomic growth is not as expected; the impact of the epidemic lag can not be predicted.

Earnings forecast, valuation and rating: 22Q3 has slowed its growth rate of deducting non-net profit under local epidemic and macroeconomic pressure, but has excellent operating cash flow performance. Business outsourcing, flexible employment to maintain high growth, traditional business performance is expected to be robust, in the current environment still demonstrates its operational resilience. Q3 company major customer cooperation is relatively stable, but the number of small and medium-sized customers increased, and potential customer demand may be under pressure, the follow-up business situation needs to be further observed. As the leading enterprise of comprehensive human resources service in China, the company is expected to benefit from the catalysis of talent policy. Taking into account the impact of the epidemic, we slightly reduce the 2022-23 return net profit forecast to 584 million yuan (the original forecast 599 million 683 million yuan), maintain the 2024 return net profit forecast of 755 million yuan, the current stock price corresponds to the 2022-24 dynamic PE is 20x1715x. According to the SOTP valuation method [based on the 2023 forecast, flexible employment / outsourcing 25xPE (we forecast a net profit CAGR of outsourcing business of about 25% in 2022-24), other business 15xPE (we forecast a net profit CAGR of about 10% in 2022-24, but deeper business barriers, stronger stability, better cash flow), actual disposable cash 1xPB], maintain the target price of 7 yuan and "buy" rating.