The company's 23H1 achieved net profit of 345 million yuan/ +7.1%. Traditional business performance was relatively steady, and the impressive growth rate of emerging businesses drove the company's performance growth. Synergies with Yuanmao (already listed) were initially evident. We judge that with the gradual restoration of corporate confidence, the company's personnel management business is expected to return to growth and that emerging businesses are expected to continue to contribute growth momentum. The company's digital transformation and capitalization expansion are also expected to continue to advance. We recommend that you pay attention.

The performance remained steady, and Yuanmao shares were also listed. In 2023H1, the company achieved revenue of 9.209 million yuan/ +35.7%, net profit of 345 million yuan/ +7.1%, minus non-net profit of 259 million yuan/ +2.0%. In the first half of the year, the company also listed Yuanmao shares. Excluding the impact of the merger of Yuanmao Co., Ltd., we estimate that net profit to return to the mother increased 2.4% year-on-year. 23Q2 achieved revenue of 4,570 million yuan/ +40.1% in a single quarter, net profit of 162 million yuan/ +8.8%, net profit of 146 million yuan/ +2.9% after deducting non-net profit of 146 million yuan/ +2.9%. Against the backdrop of pressure from macroeconomic growth and slow recovery in corporate recruitment demand, the performance of Foreign Service Holdings 23Q2 maintained a steady growth trend. The net cash flow from 23H1's operating activities was -457 million yuan (22H1 was -373 million yuan). The year-on-year decline was mainly due to the increase in value-added tax caused by the growth in outsourcing business.

The traditional business is relatively steady, and the smart & outsourcing business is growing at an impressive rate. 23H1's personnel management/talent dispatch/compensation and benefits/recruitment and flexible employment/business outsourcing services achieved revenue of 5.97/0.70/8.69/5.37/7.118 billion yuan, respectively, a year-on-year change of -1.3%/-1.5%/+12.3%/+38.6%/+44.4%. Despite facing challenges such as falling customer demand, the company's revenue from traditional personnel management and talent dispatch business declined only slightly through deep market exploration and competitive marketing. In terms of compensation and welfare business, the company has increased its marketing efforts and is focusing on improving service levels and service experience. 23H1 has added a total of 21 projects involving more than 1,000 people. As a low-cost and efficient employment method, flexible employment and business outsourcing have achieved high growth even in an environment under overall pressure. Among them, the number of people recruited and flexible workers served increased 25% year on year; new business outsourcing customers increased 20% year on year, the number of people served increased 7% year on year, and gross margin increased slightly. The merger of ideas and synergies were initially evident. Due to the structural impact of the increase in revenue share of flexible employment & business outsourcing services, the company's 23H1 comprehensive gross margin decreased by 2.5 pcts to 10.4% year-on-year, sales expense ratio was 3.9% /-1.3 pcts, management expense ratio was 2.5% /-0.4 pct, financial expense ratio was -0.7% /+0.4 pct, R&D expense ratio remained flat at 0.3%, and overall cost control was good.

The digital transformation is progressing steadily, and the capitalization drive continues to be strengthened. 23H1 has made a lot of progress in building a digital ecosystem. The FSGPLUS (FSGPLUS) net increase of individual users was about 90,000, an increase of 4.1% over the end of 2022, and the cumulative number of individual users reached 2.2875 million; the Aggregate Platform (HRally) launched a new integrated encyclopedia, created an integrated online and offline policy information center, and expanded the policy library to 120 cities. In terms of capitalization, the company effectively promoted the implementation of key projects. 23H1 invested a total of 13.55 million yuan to complete the establishment or actual payment of capital for 3 capitalization projects. Joint ventures were set up in Yibin City in Sichuan Province, Weifang City in Shandong Province, and Jiading District of Shanghai to expand the layout of key cities and deepen market segments. As of 23Q2, the company had 9.066 billion yuan in monetary capital reserves to support the continuous implementation of capitalization projects. It is expected that the company's market share will continue to rise as a result of the combined efforts of endogenous growth and external expansion. Furthermore, the performance of Yuanmao shares that the company has already acquired also achieved positive growth. 23H1 Yuanmao shares achieved net profit of 32.59 million yuan/ +22.6%, and subsequent synergies are expected to continue to increase.

Risk factors: Weaker than expected macroeconomic growth causes corporate recruitment demand to recover less than expected; development of emerging businesses such as corporate outsourcing falls short of expectations; digital transformation of companies falls short of expectations; risk of changes in industry policies and regulations; integration and collaboration after mergers and acquisitions fall short of expectations, etc.

Profit forecasting, valuation and ratings: In a context where 23H1 companies' recruitment demand has recovered more slowly than expected, the growth rate of foreign service holdings' performance has remained steady, emerging businesses are growing brilliantly, and synergies with Yuanmao Co., Ltd. are initially evident. At the same time, the digitalization and capitalization strategy process is progressing steadily. The company has strong comprehensive service capabilities, rich customer resources, and sufficient capital reserves to support digital transformation and capitalization expansion. We believe that as business confidence gradually recovers and demand for human resources services recovers, the company's personnel management business is expected to return to growth, and emerging businesses are expected to continue to contribute growth momentum (including endogeny+external extension). We recommend attention. We maintain the net profit forecast for 2023-25 at 627/7.13/795 million yuan, and the current stock price corresponding to the dynamic PE for 2023-25 is 21/18/16x. According to the SOTP valuation method [based on the 2024 performance forecast, flexible employment/business outsourcing is 25xPE (we predict that the net profit CAGR for outsourced business in 2022-25 will be around 28%, comparable to Cree International's 2024 PE18x, and its 2022-25 net profit CAGR will be 19%), and 15xPE for other businesses (we predict a net profit CAGR of around 11% in 2022-25), but the business barriers are deeper, stability is stronger, and cash flow is better, comparable to the company's manpower flow in Beijing 2024 PE14x), actual disposable cash 1xPB, and considering a 10% discount], gave a target price of 6.5 yuan and maintained the “buy” rating.