FY2025H1 results are in line with our and market expectations

BEISEN HOLDING announced FY2025H1 results: revenue increased 9.0% year over year to 0.437 billion yuan, and adjusted net loss to mother narrowed from 85.92 million yuan the previous year to 34.16 million yuan, all in line with our expectations and the market.

Development trends

Product revenue remains steady, focusing on overseas, AI, and big customer strategies. FY2025H1, the company continues to consolidate integrated solution capabilities, enhance product competitiveness, and explore customer needs in key industries such as manufacturing and retail chains. Thanks to reduced customer churn and ongoing purchases from existing customers, cloud HCM solution revenue grew steadily by 14.3% year over year, accounting for 77.6% of revenue (+3.6ppt); as of September 30, 2024, annual recurring revenue (ARR) increased by about 12% year over year to 0.784 billion yuan, the number of customers increased 5.3% year over year to 5,623 companies, and subscription revenue retention rate (NDR) reached 107% (+3ppt year over year).

The company continues to promote multi-module sales for new customers and additional purchases for old customers. As of September 30, 2024, customers who purchased two or more modules accounted for 75% of ARR. In addition, the company's core business strategy has also made positive progress: 1) AI: the company applies generative AI to various scenarios such as talent recruitment, interviews, employee service, and leadership development. Currently, the “AI interviewer” product has been successfully commercialized, with more than 50 paying customers; 2) Ecological Strategy: The number of FY2025H1 ecosystem partners exceeds 220, and the business opportunities provided by ecological partners have increased 191% year over year; 3) Major customer strategy: As of September 30, 2024, Core HCM solutions and performance products Under the scenario, there are more than 120 large enterprise customers with a scale of more than 10,000; 4) Overseas: The company's Core HCM products have achieved multi-language, multi-country, multi-currency, and multi-time zone capability support.

Profitability was further improved. FY2025H1, the company's overall adjusted gross margin reached 65.7%, +2.0ppt; among them, the adjusted gross margin of the cloud HCM solution reached 81.1%, +3.0ppt year over year, mainly due to the scale effect of the product subscription business; the adjusted gross margin for professional services reached 12.4%, -10.3ppt year on year, mainly due to the increase in the customer base structure, which led to an extension of implementation, delivery and acceptance cycles. The adjusted net loss ratio reached 7.8%, a year-on-year narrowing of 13.6ppt, mainly due to improved gross margin and effective cost control.

With FY2025H1, the company's net operating cash outflow reached 97.04 million yuan, a decrease of 44.2% compared to the same period last year. Looking ahead to the second half of the fiscal year, we expect that as the company's product-side customer purchases continue and the pace of service-side payments accelerates, it is expected to drive the adjusted net loss ratio to continue to narrow, and operating cash flow can be expected throughout the year.

Profit forecasting and valuation

The earnings forecast for the 2025 and 2026 fiscal years remains largely unchanged. Maintain an outperforming industry rating and target price of HK$5.0 (based on 3.4 times FY25 market sales ratio). Currently, the company is trading at 2.9 times the FY25 market sales ratio, which corresponds to a 23% upside.

risks

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