Zhongjin research report revealed that it maintains Northsen Holdings' (09669) "outperform industry" rating, with almost unchanged profit forecast for 2025 and 2026 fiscal years. Considering the downward trend in valuation, the target price is lowered by 8% to HKD 6. The performance in fiscal year 2024 meets market expectations, with revenue growing by 13.8% YoY to CNY 855 million, and the adjusted net loss attributable to the parent company narrowing from CNY 301 million in 2023 to CNY 105 million in 2024, which is consistent with the company's previous profit warning and market expectations.

CICC's main points are as follows:

The downstream demand is marginally recovering, and growth is repairing as planned.

Thanks to the balanced distribution of customer groups in various industries and the leading capability of an integrated solution, the company's growth resilience is highlighted in economic fluctuations, and the ARRs growth rate in fiscal year 2024 gradually restores from 12% in 2023 to 16%. Among them, the total number of cloud-based HCM solution customers grows by 8.1% YoY to 5,532, and the YoY increase in customer ARR is 7.7%, up to CNY 137,000. The company actively promotes multi-module sales for new customers and additional sales for old customers. As of March 31, 2024, about 72% of customers who purchased two or more modules accounted for the ARR, and the average number of modules per customer increased from 1.6 to 1.8, and the subscription revenue retention rate of existing customers reached 106%. Looking forward to fiscal year 2025, the company will promote business strategies in the following aspects: 1) comprehensively supporting Chinese enterprises to go global, and the company's products will design scenario capabilities in multiple languages, time zones, currencies, and compliance for going global before September 2024; 2) creating a "talent digitization" product for large enterprise management; 3) launching an AI scenario that better understands talent and promoting commercialization of "AI interviewers"; 4) continuing to focus on state-owned enterprises and major customers strategies to further enhance the coverage of Core HCM solutions in clients with over ten thousand employees; 5) actively developing an ecological partnership, and strengthening solution and project delivery capabilities. The bank expects that the ARR growth of the company in fiscal year 2025 will further accelerate.

Looking forward to the 2025 fiscal year, the company will promote business strategies in the following aspects: 1) comprehensively supporting Chinese enterprises to go global, the company's products will design scenario capabilities in multiple languages, time zones, currencies, and compliance for going global before September 2024; 2) creating a "talent digitization" product for large enterprise management; 3) launching an AI scenario that better understands talent and promoting commercialization of "AI interviewers"; 4) continuing to focus on the strategies of state-owned enterprises and major customers to further enhance the coverage of Core HCM solutions in clients with over ten thousand employees; 5) actively developing ecological partnerships, and strengthening solution and project delivery capabilities. The bank expects that the ARR growth of the company in fiscal year 2025 will further accelerate.

The loss continues to narrow.

Thanks to the organizational reform and operational system improvement, the company's gross margin improved by 7.6 percentage points YoY to 64.0% after adjustments, among which, the gross margin of cloud-based HCM solutions improved by nearly 3.8 percentage points YoY to 78.8% after adjustments, and the gross margin of professional services improved significantly by about 12.5% YoY to 22.0% after adjustments. Thanks to improvements in management, product, and operational efficiency, the company's adjusted net margin attributable to the parent company decreased by 27.7% YoY to -12.3%. Looking forward to fiscal year 2025, the bank expects that the company's adjusted net loss attributable to the parent company will further narrow to within 10%.

Risks: weak macro economy, intensified industry competition, and product iteration below expectations.