4Q23 results fell short of our expectations
The company announced 4Q23 results: 4Q23 revenue of 630 million yuan, an increase of 0.9%, achieving the first year-on-year correction in a single quarter in '23 (1-3Q revenue changed to -22.4/-18.4/ -12.9%). Among them, B-side enterprise user revenue was about 550 million yuan, down 2.8%; C-side individual user revenue was about 80 million yuan, up 34.9%; gross margin fell to about 71.3% month-on-month (3Q23:76.0%; 4Q22:74.1%), mainly due to an increase in project delivery revenue in the fourth quarter (we estimate that project delivery services and online services accounted for about 4:6); non-IFRS operating profit was 25.64 million yuan, corresponding to non-IFRS operating margin of about 4.1% (3Q23: 11.8%), and overall performance fell short of our expectations.
Development trends
Currently, demand for middle and high-end recruitment is still recovering, and companies are putting more emphasis on “cost performance.” The company pointed out that the number of new jobs in the first week after the Spring Festival increased by about 24% compared to the week after the Spring Festival in '23, and the number of posters also increased by about 42%. Overall, demand for middle and high-end recruitment continues to recover. The company said that companies are paying more attention to cost performance, stability, etc. in terms of recruitment strategies; currently, the recruitment needs of small and medium-sized enterprises are still ahead of large enterprises. The company believes that demand from large enterprises is expected to gradually pick up in the second half of the year (mainly autumn recruitment, flexible employment, etc.). We recommend continuing to track the recovery process of enterprise user demand under marginal improvements in the macro environment and policy stimulation.
Lightweight packages drive growth in the number of corporate users; 1Q24 payments are still under pressure. 1) As of 4Q23, the number of verified enterprise users was about 1.294 million (same increase of 14.5%), of which the number of new users added about 164,000 per year (same increase of 30.0%). The main reason was that the company started 3Q and continued to expand the online recruitment needs of small and medium-sized enterprises in a lightweight manner (the year-on-year change in the number of paying enterprise users was -9.6/ +1.9% as of the end of 1H23/2023, respectively), but at the same time, we have reduced the average ARPPU to a certain extent (15.4% year-on-year decline in 23). Looking ahead, we think the number of users increased by the 24 young package. The ARRPU downward trend may continue. 2) The company said that there is still some pressure on 1Q24 repayments. Based on the trend of gradual recovery in recruitment demand, the company judges that there may be a subsequent improvement, and repayments are expected to show a low and high trend throughout the year.
Shares were repurchased in '23, accounting for about 2.2% of the total shares; focus on business development enabled by technology. 1) In 2023, the company repurchased approximately HK$110 million to return shareholders. The company said it will focus more on business development in the future, waiting for significant business recovery and more abundant cash flow, or considering more reasonable shareholder return methods. 2) In addition, we recommend focusing on the development and implementation of new products enabled by AI (Doris, an AI intelligent interview product launched in 1Q24) and the growth progress of SaaS products.
Profit forecasting and valuation
Considering that current market recruitment demand is still recovering, we carefully lowered our 2024 non-IFRS net profit forecast by 16% to 180 million yuan, and introduced a new non-IFRS net profit forecast of 200 million yuan for 2025. We maintain our outperforming industry rating. Taking into account the slight decline in the industry's overall valuation center, we lowered our target price by 19% to HK$7.0, corresponding to 18/16x 2024/25e non-IFRS P/E. The current stock price corresponds to 10/9x 2024/25e non-IFRS P/E and 80% upside.
risks
Customer payment growth falls short of expectations, macroeconomic fluctuations, increased industry competition, policy risks, etc.