As a leading manufacturer of integrated cloud HCM solutions in China, the company has first-mover advantages and profound industry Know-How in the field of HR SaaS, whose integration, subscription cloud and high retention rate establish the tone of long-term growth and high certainty. At the same time, with the expansion of platform and third-party ecological applications, the user stickiness and potential sales scenarios of the company's solutions are expected to be further extended. In the future, with the gradual promotion of cross-selling between new and old customers, the high growth and strong sustainability of the company's performance can be expected. We gave the company FY2024 8 times PS, corresponding to a market capitalization of HK $8 billion, covering it for the first time and giving it an "overweight" rating.

Company Overview: leader in cloud-integrated HCM solutions. Founded in 2002, the company is one of the earliest talent management enterprises in China and the leader of domestic integrated HR SaaS. The company started with talent evaluation, ploughed talent management technology for 20 years, and began to transform to HR SaaS in 2009. Based on the self-developed PaaS platform, the company built a talent management cloud platform-iTalentX, covering all HCM modules, and grew into the first integrated cloud HCM leader in China. IDC data show that the company ranked first in HR SaaS market share for seven consecutive years from 2016 to 2022. The core customer base of the company is medium and large enterprise customers with 5-20,000 people, which currently covers more than 4900 enterprise customers, of which more than 70% of Fortune China's top 500 are company customers, and their product capability and value are recognized by medium and large enterprises. In fiscal year 2023, the company realized income of 751 million yuan and core net profit and loss of 300 million yuan.

Industry analysis: 10 billion blue ocean prospects, cloud + integration from the wind. According to Jinshi Consulting data, the compound growth rate of China's cloud HCM market size reached 27.7% from 2017 to 2021, far exceeding the 20.8% of the digital HCM industry. The cloud market size is expected to reach 30.4 billion yuan in 2027, and the CAGR is as high as 33%. The gap with the US market is expected to quickly narrow from 17.5% to 5.6%. We estimate that the annualized TAM of cloud HCM is about 43.9 billion yuan based on the number, unit price and penetration of super-large, medium-sized, small and micro enterprises in China. In terms of the market pattern, the market pattern of cloud HCM solutions in China is relatively scattered. In 2021, the CR5 is about 30%, of which Beisen City accounts for 11.6%, ranking first. In terms of business, in the industry, Beisen adopts the "cloud + integration" business model, while most other companies adopt the "local / single module / cloud transformation" model. The first-mover advantage of cloud + integration and the gradual construction of technical and ecological barriers are expected to accelerate the further increase of Beisen's share.

Core competence: the leading HR SaaS of integration, cloud and platform. 1) Integration: the company is currently the first and only cloud HCM solution leader covering all HCM modules in China, and its unique integration advantage can create a large number of up-selling and cross-selling opportunities. Based on 20 years of industry Know-How in the field of human resources, high professionalism, reliability and validity of products, perfect customer successful service team and service system, the company's subscription revenue retention rate is as high as 106% in fiscal year 2023, effectively setting the tone for future performance growth. 2) Cloud: Beisen Cloud HCM has the advantages of low cost and easy expansion. Its business model is subscription prepaid system, which locks excellent cash flow in advance to ensure high certainty and high persistence of performance. 3) platform: the company's forward-looking layout Cloud native PaaS platform can realize rapid development of low code, meet the internal customization needs of medium and large customers, and increase customer stickiness; "Senyun Project" helps ecologically connect hundreds of ecological partners, accelerate the expansion of third-party application scenarios, user stickiness and sales scene extension, bringing about the improvement of the company's overall profitability and boundaries.

Risk factors: intensified market competition; lower-than-expected cross-selling; sustained business losses; risk of macroeconomic fluctuations; ecological construction is not as expected.

Investment suggestion: the company is the leader of domestic integrated HR SaaS, leading in product capacity, and its SaaS subscription model makes the company's future performance with high certainty and sustainability. The company continues to cultivate the cloud HCM industry, accumulates profound talent management Know-How, continues to lead the customer success system, maintains high income retention rate by virtue of product integration, high professionalism, reliability and validity, and establishes the tone of high performance growth. We estimate that the FY2024/2025/2026 income of the company is 907 million / 1.123 billion / 1.4 billion yuan respectively, and the net profit of returning home is-260 million /-143 million /-36 million yuan. The average PS of Workday, PaycomSoftware, Ceridian HCM and Kingdee International Software Group of comparable companies in the same industry is 8x/7x/6x in FY2024-2026 (Bloomberg consensus expectation). Considering the company's leading position in the industry, first-mover advantage, deep industry Know-How, integration and platform advantages, high proportion of subscription revenue and high retention rate, we give the company FY2024 8 times PS, corresponding to a market capitalization of HK $8 billion and a target price of HK $11. Coverage for the first time, giving a "overweight" rating.