If the revenue scale grows by 70-100% in the next three years, creating another Renrui HR (06919), is it a buying opportunity in the secondary market?

This is a proposition we are considering after attending the Renrui HR 2024 mid-year earnings conference.

According to the 2024 mid-year performance report, Renrui HR achieved a revenue of 2.48 billion yuan in the first half of the year, an increase of 20% year-on-year; a gross profit of 0.23 billion yuan, an increase of 37.6% year-on-year; and the attributable net profit to equity holders was 21.853 million yuan, an increase of 117.3% year-on-year. In addition, the basic earnings per share reached 0.15 yuan, hitting a two-and-a-half-year high.

Renrui HR Chairman and CEO Zhang Jianguo said that as the company accelerates its digital transformation, coupled with strong support from the state for the digital industry, the company believes that the future demand for digital talent will further increase. Therefore, the company will seize the business opportunities brought by the market's digitalization, specialization, and internationalization trends.

The best half-year revenue record

Looking at the details, in the first half of 2024, Renrui HR achieved remarkable achievements in revenue, gross margin growth, earnings per share, and international business layout.

In terms of revenue, the revenue in 2021 was 4.739 billion yuan, and the revenue in the first half of 2024 was 2.482 billion yuan, a year-on-year increase of 20%. If the current growth is maintained, Renrui HR's revenue for this year will hit a historical high.

In terms of gross margin, Renrui HR has achieved an improvement in the gross margin level in all sectors. The overall gross margin of 9.4% has increased by 1.3 percentage points from 8.1% in 2023, setting a best record in the past 4 and a half years of reports and approaching the historical high of 11.3% for the full year of 2017, indicating that the digital talent business has gradually become a pillar of the company.

The strong financial results are due to the outstanding performance of digital technology and cloud services, reflecting the success of Renrui HR's "second entrepreneurial" reform, the management's insistence on established strategies, and outstanding execution.

Three and a half years later, the revenue from digital technology and cloud services in 2021-2023 was 0.1 billion, 0.288 billion, and 1.7525 billion yuan, and then surged to 0.948 billion yuan in 2024H1; their proportion of revenue has risen from 1% in 2021 to the current 38.2%; and has contributed 56.1% to the gross margin of the total revenue. The revenue growth rate of 28.8% in 2024H1 far exceeds the company's overall revenue growth rate by 8 percentage points, becoming an important engine driving the overall performance growth of the company.

Looking back to mid-July 2021, three years ago, Renrui HR held a conference for middle and senior management to officially propose the strategic initiative of "second entrepreneurship," focusing on the digital talent business and creating a "second growth curve."

Do not underestimate this 38.2% proportion. In three and a half years, the revenue from digital technology and cloud services has far exceeded Renrui HR's full-year revenue level in 2017. And if the current growth rate is maintained, its full-year revenue may equal that of 2.288 billion yuan in 2019.

The number of digital talents is also a good proof. In 2021, the number of digital talents was only over 1000, while the number of digital talents in 2024H1 exceeded 0.01 million, an increase of 30.7% year-on-year, accounting for nearly one-third of its total number of comprehensive and flexible employees.

Renrui HR has achieved strong growth in intelligent manufacturing, autos, communications, energy, finance, and technology and internet in multiple industries. The head customers have exceeded 500 employees, forming a large-scale customer base, with about 20 customers having over 100 employees. This is consistent with the recent industrial development direction in China.

Chen Chen, Vice President and CFO of Renrui HR, stated that through digital platform construction, Renrui HR has optimized service costs, service efficiency, and more. "Currently, the overall service cost of the company is half of that of other service providers in the market. At the same time, the service efficiency and recruitment efficiency of the company are 1.5 to 2 times that of its peers."

The third growth curve

Currently, "going global" has become a hot topic of discussion in the industry. In this year's semi-annual report, Renrui HR explicitly proposed the deployment of a new strategy for overseas human resources services, actively seeking new business growth opportunities.

Zhang Jianguo stated that as Chinese companies expand globally, building a global map will be a process lasting decades or even longer. Renrui HR began to explore the overseas market in 2019, but progress was slow due to the pandemic. They plan to reorganize starting in 2024.

How to maintain an advantage in the market price competition of digital talent services? Zhang JianGuo stated that Renrui HR's overseas layout is mainly driven by the "going out" of Chinese customers, providing efficient overseas personnel recruitment services, outsourcing services, nominal employer services, salary services, and cross-regional employment management solutions. The company will use the merger, joint venture, and self-established overseas entity models to quickly replicate the accumulated service advantages overseas with an international, young, and professional talent team.

Zhang Jianguo emphasized that the overseas business development is mainly a self-built model. They plan to establish companies in over ten countries in Europe, the Middle East, and Southeast Asia by the end of this year, and are planning to expand to more than 30 countries or regions by the first half of next year, mainly distributed in Europe, the Middle East, South America, and Southeast Asia.

Zhang Jianguo further pointed out that the gross margin of overseas services is usually higher than that of domestic ones, which provides Renrui HR with new growth space. He even referred to the overseas business as a new "growth curve" for the company, following digital technology and cloud computing services.

In Zhang Jianguo's view, Renrui HR has taken about three years to establish a second growth curve, and the speed of internationalization will not be slower than that of digital talent business. "We have over a thousand service clients in China, and their overseas needs are diverse." The overseas business will make a significant contribution to next year's performance, and the proportion of international business in the company's overall performance will be visually demonstrated over the next three years.

However, a professional in the talent outsourcing business told the Zhitongcaijing APP that domestic talent outsourcing usually requires capital, while overseas talent business does not involve this issue. If Renrui HR's overseas strategy succeeds, "it will further improve the company's cash flow, gross margin, and net profit margin."

Conclusion

On August 26th, Renrui HR's stock price fell by 15.82%, with a trading volume of only 0.0403 million yuan.

The sharp decline in stock price due to the small trading volume is evidence of Renrui HR's reduced liquidity and also indicates the reluctant selling of its bottom chips.

However, this is in stark contrast to Renrui HR's financial report. In the first half of 2024, Renrui HR achieved earnings per share of 0.152 yuan, a new high in the past two and a half years. Its dynamic price-to-earnings ratio was only 11.68, and the pb ratio was 0.477, which is already below book value.

Considering Renrui HR's full-year performance expectations, it is possible to achieve the highest revenue in history and the second best net profit in history. With these two factors driving it, Renrui HR's dynamic PE and PB ratios may further decline, highlighting its investment value even more.

If it is a penny stock company, or a company with revenue of less than 1 billion and net income of less than 10 million, then looking at the PE and PB is worthless. But for a company with revenue exceeding 4 billion and net income exceeding 40 million yuan, these indicators have strong attractiveness.

Moreover, the expectation of continuous growth in revenue, net income, and gross margin, as well as the acceleration of the international business layout, all indicate that the company will continue to maintain a good development trend in the future.