The 2023 results fell short of our expectations, and the 1Q24 results met our expectations
The company announced its 2023 results. The company achieved revenue of 38.31 billion yuan in 2023, an increase of 18.5% and net profit of 550 million yuan after adjustment, which was slightly lower than our expectations, mainly due to the recovery of 2H23 downstream employment demand falling short of expectations; of these, net profit of Beijing foreign enterprises with assets placed in assets was 8.3 billion yuan, an increase of 12.8%; after deducting non-net profit of 490 million yuan, an increase of 14.3%; we calculated 4Q23 Beijing foreign companies' net profit of 185/92 million yuan respectively. In addition, the company plans to pay 4.84 yuan for every 10 shares, with a dividend ratio of 50%. At the same time, 1Q24 results were announced. 1Q24 achieved revenue of 10.55 billion yuan, an increase of 12.9% after adjustment; net profit to mother was 210 million yuan, which was in line with our expectations and decreased by 18.9% after adjustment. We believe that the main reason was the impact of the 1Q23 government tax refund period, and the base figure was high; after deducting non-net profit of 186 million yuan.
Development trends
1. Business outsourcing led to rapid revenue growth in 2023. The company continued to strengthen product specialization capacity building in 2023, and focus on unified management of major customers. Specifically, in terms of: 1) In terms of traditional business, personnel management/compensation and benefits achieved revenue of 10.9/1.15 billion yuan in 2023, which we think was mainly affected by the number of employees of some downstream customers; 2) In terms of emerging business, business outsourcing/recruitment and flexible employment achieved revenue of 31,63/3.85 billion yuan, an increase of 23.6%/3.4% year on year. The company focused on specialized development of outsourcing business It actively broke through in IT, energy, FMCG retail and other industries, driving overall performance growth.
2. The gross margin of the main business is improving, and the company's competitive advantage is obvious. The company's overall gross margin decreased by 1.0ppt to 6.9% in 2023, mainly due to the rapid increase in revenue share from the outsourcing business with low gross margin. By business, gross margin of personnel management/ compensation and benefits/ business outsourcing increased by 0.5/0.6/0.1ppt to 86.2%/18.9%/3.3%, respectively. Traditional business advantages continued to improve. Combined with digitalization cost reduction and efficiency, the overall profit level was maintained. The profit margin level of business outsourcing was also high compared to competition.
3. Market-based operation capabilities are outstanding, and overseas business continues to advance. The company's various subsidiary companies have continuously improved specialized services in response to customer needs for 23 years. For example, the Guangdong company broadened recruitment channels for IT, manufacturing, and domestic service jobs, the Qingdao company provided job outsourcing for local hospitals, etc., and the Fujian company provided e-commerce customer service outsourcing according to the industrial structure. We think it shows the company's market-based operation capability and is optimistic that it will continue to occupy share.
Furthermore, in terms of overseas business, the company established FESCO IVY in Hong Kong in 2023 to establish a talent dispatch service product system covering services such as recruitment and compliance consulting, and international development is accelerating.
Profit forecasting and valuation
Considering that the overall employment demand in the industry is still recovering, the company's traditional business growth rate is under some pressure. We lowered the company's profit forecast for 2024 by 12% to 930,000 yuan, and also introduced a profit forecast of 1.05 billion yuan for 2025. The current stock price corresponds to 11.5/10.2 times PE for 2024/25. We believe it is low compared to historical valuations and comparable company valuations. Maintaining an outperforming industry rating, the target price was lowered by 10% to 27 yuan based on profit forecasting adjustments, corresponding to 16.5/14.6 times PE in 2024/25, with 43% upside compared to the current stock price.
risks
Industry competition intensified; loss of major customers; macroeconomic fluctuations; mergers and acquisitions, overseas travel fell short of expectations.