The rapid endogenous growth of 23H1's digital talent business and the combination of benefits have driven rapid growth on the revenue side, a significant increase in gross margin, and a reversal of losses in performance. At the same time, the company's service industry has become more diversified, and the risk of large customer concentration being too high has declined markedly. As the company is in a critical period of fundamental improvement, it is recommended to continuously track performance delivery. We expect the company to gradually get rid of the negative impact of the previous termination of major customer contracts and return to a normal growth trajectory and maintain its “increase in holdings” rating.
Digital professional services are driving growth, and performance has improved markedly. 23H1 achieved revenue of 2,068 billion yuan/ +19.3%, including comprehensive flexible employment revenue of 2,051 billion yuan/ +21.0%, and professional recruitment and other human resources solutions revenue of 17.1 million yuan/ -55.8%. The digital talent business drives rapid growth in flexible employment business revenue, while macroeconomic pressure suppresses customer recruitment demand, leading to a marked decline in recruitment business revenue. The company focuses on high-value digital professional services. The revenue share of 23H1 digital professional services increased to 41.5% /+28.0pcts. Changes in revenue structure and improvements in overall human efficiency drove the company's overall gross margin to increase by 4.3 pcts to 8.1% year-on-year; 23H1's sales expense ratio was 4.3% /+2.9 pcts, management expense ratio was 3.6% /+0.3 pct, and R&D expense ratio was 1.3% /+0.5pct. The increase in cost rate was mainly due to the company's increased investment in marketing promotion activities in digital technology and cloud service business , further develop the Ruizhi system, and merge with Shanghai Sirui. The company's 23H1 adjusted net interest rate was 1.1% /+2.4pcts, achieving an adjusted net profit of 22.44 million yuan (22H1 was -2.08 million yuan).
The number of outsourcers has bottomed out and rebounded, and the service industry is becoming more diversified. As of 23H1, the number of the company's comprehensive flexible employees was 33,864/ +17.3%, of which the number of digital and information technology talents reached 7,830/ +545.0%. The bottoming out and recovery in the number of employees was mainly due to strong customer demand for digital talents. Specifically, the revenue of the general service outsourcing business was 1,194 million yuan/ -18.3%. The business contraction was mainly due to the business restructuring of some old customers, which led to a decrease in project demand and a certain period of new customer growth; the digital technology and cloud service business focused on high-growth industries, achieving revenue of 736 million yuan/ +560.5% through endogenous mergers and acquisitions (157.2% growth rate); digital operations and customer service business revenue was 121 million yuan/ -0.8%. The business improved operational efficiency in the macroeconomy Stay stable in uncertain situations. As of 23H1, the company's top five and top ten customers accounted for 36.1%/48.6% of revenue, respectively (vs.
22H1 is 39.3%/52.6%), and the largest customer accounts for about 11.5% of revenue (vs. 12.4% at the end of 2022). The risk of excessive concentration of large customers has been significantly reduced, and the average length of cooperation with the top ten 23H1 customers has been extended to 7.2 years (3/4.9/5.6/6.6 in 2019/20/21/22, respectively). In addition, the diversification of customer industries continues to advance, with high-tech and high-end manufacturing/internet/finance/other industries accounting for about 42%/34%/17%/7%, respectively. By expanding the coverage of the industry's customer base, the company enhances development potential and enhances service value.
Risk factors: The renewal rate of leading customers falls short of expectations; competition in the flexible employment industry intensifies; the growth rate of the new economy industry continues to slow down; the company's mergers and acquisitions asset management falls short of expectations; and the company's new customer development progress falls short of expectations.
Profit forecasting, valuation and ratings: 23H1's booming digital talent business has driven a high increase in spiritual income, the number of flexible workers has bottomed out and rebounded, gross margin has improved markedly, and adjusted net profit has reversed losses year-on-year. Considering that 23H1's flexible employment business and gross margin have recovered well, we are optimistic about the development opportunities of the company's digital talent business in the context of China's continuous industrial upgrading and enterprise digital transformation. It is expected that the company will gradually break away from the negative impact of the termination of previous major customer contracts and return to a normal growth trajectory, raise the 2023-2025 adjusted net profit forecast to 0.62/0.95/127 million yuan (the original forecast was 0.41/0.63/081 billion yuan), and select Cree International, Beijing Manpower, Foreign Service Holdings, and Wanbao Shenghua as comparable companies, which are comparable The company's current price corresponds to a dynamic PE average of 18x in 2023 (the first three companies are based on CITIC Securities Research Department predictions, and Wanbao Shenghua is based on Wind's unanimous expectations). Since the company's fundamentals are in the improvement stage, it is recommended to pay attention to subsequent performance implementation, give the company a 2023 15xPE valuation and consider the current stock price liquidity situation, and give the company a 25% discount, corresponding to the target price of HK$5.0, maintaining the “increase in holdings” rating.