We expect FY24 revenue to increase 14% year over year to 850 million yuan, and losses will narrow sharply year over year

We expect Beisen Holdings' FY24 revenue to increase 14% year over year to 852 million yuan; adjusted net loss to mother is estimated to be 145 million yuan, corresponding to a net loss ratio of 17%, which is a sharp decrease of 23 percentage points year over year.

Key points of interest

Revenue growth has steadily recovered. Along with a marginal recovery in downstream demand, we expect the company's FY24 revenue and ARR to record 14% and 16% year-on-year growth respectively, up from the same period last year. Considering the remaining uncertainty in the macro environment, customers are still cautious in making new purchases. We expect the subscription revenue retention rate (NDR) of existing customers to remain flat at 106% year over year. The company further promoted the ecological strategic plan during the period, and joined hands with strategic partners such as DingTalk and Hande Information to achieve an upward breakthrough in the customer base, using solutions represented by integrated procurement as a starting point; we expect FY24's customer numbers and customer unit prices to grow by a high number of units. On the product side, the company released the 7.0 version of the iTalentX platform in May 2023, innovatively incorporating business roles such as employees into the HR software scenario design category, and promoting the shift of HR software from “designed for HR” to “designed for employees”. At the same time, the company continues to promote iterative innovation in product functions. In September 2023, the company released three new products of labor management, interviewer operation system, and AI Family at the first user hero conference “HRIS GO”, and comprehensively upgraded People Analytics 3.0 and comprehensive compensation 2.0 products to help enterprises implement HR digital value in the three dimensions of improving talent quality, reducing organizational costs, and increasing overall efficiency. Among them, the AI Family product family is a full-scenario solution launched by Kitasen based on generative AI, focusing on the needs of intelligent enterprise recruitment, talent management, process application, and employee service; with the continuous improvement of the AI Family product matrix, we expect its commercialization prospects to be promising.

The loss reduction is expected to be realized as scheduled. We expect the company's FY24 gross margin to improve by 5 percentage points to 60% year over year, mainly due to improved operation, maintenance and delivery efficiency brought about by the optimization of resource ratio. We expect the adjusted net loss ratio to fall sharply by 23 percentage points to 17% year over year, mainly due to improved gross profit and effective cost control. Accordingly, we expect the company's FY24 operating cash outflow to be narrowed from FY23's 150 million yuan to less than 100 million yuan. Looking ahead to FY25, we expect that the release of the company's operating leverage will drive the adjusted net loss ratio to continue to narrow. It is expected that the company may achieve positive operating cash flow within the year as scheduled.

Profit forecasting and valuation

Based on prudent expectations for corporate customer budget restoration and order cycle normalization, the FY24/FY25 revenue forecast was lowered by 1.3%/5.5% to 852 million yuan/989 million yuan. In view of the company's remarkable results in improving operating efficiency, the adjusted net loss forecast for FY24/FY25 was adjusted from 176 million/122 million yuan to 145 million yuan/98 million yuan. Introducing FY26 revenue and an adjusted net loss forecast of $1,145 million/$43 million. Maintain an outperforming industry rating and target price of HK$6.5 (corresponding to 4 times FY25 market sales ratio). Currently, the company is trading at twice the FY25 market sales ratio, which corresponds to 63% upside.

risks

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