In the first half of the year, the company's revenue grew steadily, gross margin improved markedly, and adjusted net loss narrowed. Affected by the external macro environment, the growth rate of the company's procurement business revenue has slowed down, but the core human resources products business revenue is growing rapidly, which strongly supports the company's future development. The company uses large model capabilities to empower recruitment modules, continuously launch new modules, and improve product systems. The company was given 4 times PS for FY2024, corresponding to a market value of HK$3.8 billion and a target price of HK$5, maintaining the “increased holdings” rating.

The company announced interim results for fiscal year 2024: From April 1, 2023 to September 30, 2023, the company achieved operating income of 401 million yuan (YoY +14.2%), gross profit of 237 million yuan (YoY +25.2%), adjusted net loss of 85.92 million yuan (YoY +43.5%), and operating cash flow - 175 million yuan (YoY +5.9%).

Revenue grew steadily, and gross profit improved markedly. FY2024H1, the company's revenue grew steadily, achieving revenue of 401 million yuan (YoY +14.2%). Among them, the revenue of cloud-based HCM solutions was 297 million yuan (YoY +17.1%), accounting for 74.0% of total revenue (YoY+1.8 pcts), and the number of customers exceeded 5,300. After deducting equity incentives, the company's gross profit improved markedly. The adjusted comprehensive gross margin was 63.7% (YoY+9.5 pcts), mainly because the company established a refined operating system to optimize internal collaboration and operational efficiency. The adjusted gross margin for professional services increased sharply by 22.4% to 22.7% over the same period last year. The company's sales/management/R&D expense ratio was 58.0%/25.0%/46.7%, respectively. The significant increase in the rate was mainly affected by the increase in the scale of equity incentives. The adjusted sales/management/R&D expense ratio was 44.5%/15.4%/34.1% (YoY 5.2/-2.9/-6.6 pcts). Under revenue growth, margin improvement, and cost control, the company's net loss narrowed, achieving an adjusted net loss of -85.92 million yuan (YoY +43.5%).

ARR is growing steadily, and its core human resources business supports the company's development. In the first half of the year, the company's subscription revenue retention rate reached 104%, a decrease from FY2023, mainly due to the external macroeconomic environment affecting the sales of recruitment evaluation modules.

Over the past 12 months, the company's ARR exceeded 650 million yuan, and the average customer ARR reached 1312,000 yuan (YoY +5%).

The share of ARR for multi-module subscription customers increased to 71.4%, and cross-selling continued progress. By module, CoreHCM integrated solutions developed rapidly and expanded new fields of labor management. Customer ARR increased 35.1% year over year, accounting for 48.4%, revenue retention rate reached 114%, customer renewal rate reached 95%, renewal and renewal rates led the industry; integrated bidding business ARR accounted for 23.3%, 137 new customers were added in half a year, and recruitment products were implemented in major customers; performance ARR increased 32.3% year on year; 169 new customers were added, new managers directly set distribution goals, multi-dimensional authority management Functions such as performance improvement plans; Learning Cloud ARR increased 84.5% year-on-year, adding 130 customers, and achieving further connectivity with recruitment, personnel, compensation, leave, and performance business scenarios and data.

The AI product supports the bidding module, and the product matrix continues to improve. The company's low-level Luban PaaS platform integrates large-scale model capabilities and launches a series of new AI functions based on recruitment scenarios, including GPT job writing JD, application consulting robots, similar talent recommendations, GPT evaluation resumes, intelligent talent insight, etc.; at the same time, personal leadership coaching and GPT data assistant functions are launched at the management level. In the future, the company is expected to build and improve the AI product matrix around recruitment scenarios, and gradually integrate model capabilities into scenarios such as personnel and performance. The company will continue to launch new products based on customer demand for cost reduction and efficiency, including the development of interviewer operation systems and cognitive qualification management systems, workforce management systems, and People Analytics 3.0. The company focuses on the “PaaS+ integration” strategy, takes employee needs as the core, and further expands the company's leading edge.

Risk factors: increased market competition; cross-sales fell short of expectations; continued business losses; macroeconomic fluctuations; ecological construction fell short of expectations.

Profit forecasting, valuation and ratings: The company is the leader in integrated HR SaaS in China, with leading product capabilities. It maintains a high revenue retention rate through product integration, high professionalism, and reliability. Short-term revenue growth has been steady, and adjusted net losses have improved, setting the tone for high performance growth over the long term. Considering the current external macroeconomic situation, the company's FY2024/2025/2026 revenue forecast was adjusted to 8.69/10.74/13.37 (the original forecast was 9.07/11.23/1,400 million yuan), and the net profit forecast was adjusted to -2.36/1.23/- 021 million yuan (the original forecast was -2.60/-1.43/-036 million yuan). According to comparable companies in the same industry, Workday, Paycom Software, Ceridian HCM, and Kingdee International FY2024 have an average of 7 xps. Considering the company's small scale of operations and the current poor liquidity of Hong Kong stocks, the company was carefully given 4 times PS to FY2024, corresponding to a market value of HK$3.8 billion and a target price of HK$5, maintaining an “increased holdings” rating.