Incident: Company discloses 2022 Annual Report & 2023 Quarterly Report. In 2022, the company achieved revenue of 14.664 billion yuan, +28.02% year on year; net profit of the mother was 546 million yuan, +2.76% year on year. 2023Q1, the company achieved revenue of 4.639 billion yuan, +31.61% year on year; net profit of the mother was 183 million yuan, +5.56% year on year.
Gross margin declined due to cost pressure and an increase in the share of business outsourcing revenue: in 2022, the company's gross margin was 11.93%, -3.22pct over the previous year; the sales/management/finance expense ratio was 4.74%/2.75%/-0.96%, respectively, and -1.38/-0.53/-0.25pct over the previous year. 2023Q1, the company's gross margin was 9.52%, -1.72pct over the previous year. By business, revenue from personnel management services/talent dispatch services/compensation and benefit services/recruitment and flexible employment services/business outsourcing services in 2022 was 12.32, 1.44, 16.89, 8.03, and 10.757 billion yuan respectively, compared with +6.33%/+8.53%/+13.18%/+24.81%/+34.63%; gross margin was 75.64%, 71.06%, 27.12%, 7.05%, 1.70%, year-on-year -5.56/-5.04/-4.07/-0.80/ -0.29pct. In 2022, gross margin declined due to factors such as an increase in the personalized demand of large customers in the personnel management & talent dispatch business, an increase in the cost of health management services during the pandemic, and an increase in the share of outsourced revenue with low gross margins.
The volume of business outsourcing continues to increase, and Yuanmao Services will contribute to the increase in performance: in 2022, the company's business outsourcing revenue increased by 35%, and the number of outsourced employees was nearly 100,000, focusing on key industries such as retail, financial outsourcing, and key areas such as file management and outsourcing to enhance professional service capabilities. The company's business outsourcing services added 14 major clients in the financial and retail industries throughout the year. The number of job recruits increased by 70%, the arrival rate reached 82%, and the number of cities covered reached 123. At the end of 2022, the company achieved a merger with Yuanmao Service. Yuanmao Service focuses on the field of domestic enterprise blue-gray-collar business outsourcing. Customers are mainly distributed in automobile manufacturing, food processing, logistics, pharmaceuticals, FMCG and other industries, which fully complements the company's current business layout of providing personnel management services to foreign-funded white-collar workers.
Fully implement the “digital outsourcing” strategy and promote digital platform construction: the cloud platform (FSGPLUS) built an industry-level human resources ecosystem, empowered customers through the “three-way” effect integrating “cloud delivery”, “cloud interaction” and “cloud transactions”, launched a single sign-on solution for self-service for employees of major clients, and digital service solutions for small and micro customers. The total number of enterprise customers reached 12,400; the total number of HRIGHT (HRIGHT) customers reached 825, and the regional coverage of self-operated customers reached 92%.
Investment advice: Outsource Holdings has been deeply involved in the domestic garment industry for nearly 40 years, providing one-stop human resources services. The company's business network is spread all over the country, with strong capital strength and obvious comprehensive advantages. In the company's traditional business, personnel management and talent dispatch contribute steadily to cash flow; the rise in fields such as business outsourcing and flexible employment in emerging businesses opens up room for growth. We expect the company to achieve net profit of 639/732/837 million yuan in 2023-2025, respectively. Corresponding to the current PE valuation of 21x/18x/16x, respectively, it will maintain the “increase in holdings” rating.
Risk warning: Market competition is fierce, the recovery in employment demand falls short of expectations, and policy supervision is becoming stricter.