1H23's performance met our expectations
The company announced 1H23 results: revenue of 9.209 billion yuan, same increase of 35.7%; net profit of 345 million yuan, same increase of 7.1%, in line with our expectations; net profit of non-return net profit of 259 million yuan, same increase of 2.0%. On a quarterly basis, 1Q/2Q revenue increased by 31.6%/40.1%, net income increased by 5.6%/8.8%, net profit after deducting non-homologated net profit of 0.8%/2.9%, 2Q performance growth accelerated month-on-month.
Development trends
1. Emerging businesses are growing at an accelerated pace, with 1H23 revenue growth of 35.7%. 1) There was a slight decline in traditional business: the revenue generated by 1H23 personnel management/talent dispatch contracts fell 1.3%/1.5% respectively. We determined that it was mainly due to the impact of foreign customer business adjustments; 2) Overall growth in emerging businesses: 1H23 compensation and benefits/recruitment and flexible employment/business outsourcing revenue increased 11.2%/38.6%/43.9%, of which the compensation and welfare business added 21 projects with more than 1,000 people. The number of business outsourcing services increased 7% year-on-year, gross margin increased slightly. At the same time, the synergy effect with Yuanmao increased, and 29 new clients signed in. Furthermore, in terms of customer development, domestic customers have become a new growth pole, with corporate customers in China accounting for 65% of the total number of new customers added in 1H23.
2. Changes in the business structure affect gross profit margin, and overall profitability has declined. 1H23's gross margin also fell by 2.5ppt to 10.4%. We believe the increase in the share of outsourcing business is mainly due to low gross margin. In terms of expenses, the sales cost rate decreased by 1.3 ppt to 3.9%, and the management cost rate decreased by 0.4 ppt to 2.5%. The scale effect increased, cost reduction and efficiency were remarkable; the R&D cost rate was 0.3%, the same as the previous year, and the company's digital transformation investment progressed steadily. Under comprehensive influence, 1H23 net interest rate decreased by 1.0ppt to 3.7%, and net interest rate after deducting non-attributable net interest rate also fell by 0.9ppt to 2.8%.
3. Digitalization, internationalization and capitalization strategies continue to advance, and we are optimistic that leading comprehensive human service leaders will accelerate their growth. 1) Digitalization: The company accelerated the construction of a digital ecosystem. The cloud platform 1H23 had a net increase of 90,000 individual users, an increase of 4.1% over the end of 2022. The cumulative number of individual users reached 2.2875 million, continuing to empower front-line sales; the business backyard platform accelerated the integration of innovative technology, and the People's Social Network directly connected projects to Sichuan and Zhejiang; 2) Internationalization: With FSG TG as a starting point, 1H23 signed 20 new customers, 2 to 17 new customers, and accelerated global expansion; 3) Capitalization: 1H23 completed The capitalization project, with a total investment of 13.55 million yuan, is promoting the establishment of joint ventures in Yibin City, Weifang City, and Jiading District of Shanghai. We believe it is expected that they will continue to deepen the regional market and seize share through capital operations.
Profit forecasting and valuation
The net profit forecast for 2023/2024 was maintained at 614.722 million yuan, and the current stock price corresponds to 22/18 times P/E for 2023/2024. Maintaining an outperforming industry rating and target price of 7 yuan, corresponding to 26/22 times P/E in 2023/2024, there is 20% upside from the current stock price.
risks
Industry competition heightens risks, and there is a risk of macroeconomic fluctuations.