Investment highlights

For the first time, it covered Beisen Holdings (09669) to give it an outperforming industry rating. The target price was HK$6.50, which is 4 times the FY25 market sales rate. The reasons are as follows:

A leading provider of cloud-based HCM (HCM) solutions in China. Based on its own iTalentX platform, Kitasen provides enterprises with integrated, multi-module cloud HCM solutions. The strategy focuses on the full life cycle human resources management needs of medium and large enterprise customers with standardized products. According to Insight Consulting, the company is the only service provider in the industry that covers all major HCM usage scenarios and has a completely cloud-native solution. As of the first half of 2023, Kitasen has topped the IDC China HCM SaaS market share list for eight consecutive years.

The importance of talent assets has soared, and the need for digital management needs to be released urgently. The annual human resource management expenses of Chinese enterprises have reached 100 billion yuan, yet the digitization rate of the HCM market is still at a low level. In the context of technological iterative upgrading and increased awareness of digital transformation of enterprises, Insight Consulting expects the market size of digital HCM solutions in China to grow from 18.9 billion yuan in 2021 to 59 billion yuan in 2027, corresponding to a 3.6% digitization rate. With the rise of cloud computing technology, enterprises have a growing demand for flexible, easy-to-use and more cost-effective HCM services, and cloud solutions are gradually being favored by the market. Insight Consulting predicts that the market size of cloud HCM solutions in China is expected to reach 34 billion yuan by 2027, corresponding to a cloud penetration rate of 51.6%.

The industry is experienced and the business model is highly visible. Backed by a self-developed PaaS platform, Kitasen implements an integrated product strategy and continues to consolidate business barriers. Focusing on the core customer base, the company has built a professional sales process and service system with the goal of customer success, and has accumulated proprietary talent management technology and deep industry implementation experience over many years of practice. The company insists on delivering solutions in the form of public cloud products and charges for software from products using a subscription model. In fiscal year 2023, the company's subscription revenue accounted for 72%, which is higher than the average of local SaaS vendors.

What is our biggest difference from the market? We are optimistic about the demand release potential of China's digital HCM solution market and the product and customer base positioning of the company's integrated cloud HCM service providers.

Potential catalysts: Economic recovery accelerates the HCM digitization process; integrated HCM service providers continue to lead market integration.

Profit forecasting and valuation

We expect the total revenue of FY24/25 to reach 88/1.04 billion yuan, corresponding to the compound revenue growth rate of 17.5% for FY23-25. The first coverage gave an outperforming industry rating. The target price was HK$6.5, based on 4 times the FY25 market sales ratio. The company is currently trading at 3x FY25 market-sales ratio, which corresponds to 37% upside.

risks

The macroeconomy is weak; industry competition intensifies; product iterations fall short of expectations.