3Q24 results exceeded our expectations

The company announced 3Q24 results: 3Q24 revenue was 0.503 billion yuan, down 10.0% year on year. Among them, B-side enterprise user revenue was 0.426 billion yuan, a year-on-year decrease of 14.3%, and C-side individual user revenue was 76.78 million yuan, an increase of 23.7%. Non-IFRS operating profit also increased 28.3% to 85 million yuan, and non-IFRS net profit also increased 13.8% to 56.2 million yuan. Overall performance was higher than our expectations, mainly due to improved ability to control sales and R&D expenses driven by personnel optimization.

Development trends

Currently, the recruitment market is still under pressure. Focus on demand trends around the Spring Festival in '25. The middle and high-end recruitment market continues to be under pressure. We estimate that 3Q24 companies' repayments narrowed slightly from month to month, but still maintained a double-digit decline; the total number of jobs recruited on the platform 1-3Q24 fell by about 6%, and the number of new jobs recovered to about 70% to 80% in '21. The company maintained its annual revenue reduction guideline of 10%. By industry, there is still some differentiation: the number of new jobs in industries such as electronic communications, semiconductors, and new energy vehicles increased year-on-year; the number of new jobs in the finance, real estate, and Internet industries is still in a downward channel. Under this trend, the company used lightweight packages to boost in-depth sales in the upward trend industry. As of 3Q24, the cumulative number of verified enterprise users also increased by 10.9% to 1.4 million. We estimate that the number of paying customers may have increased by medium to low digits, and ARPPU continues to decline. Furthermore, the company pointed out that a package of incremental policies introduced at the end of September had a positive effect on boosting market confidence and improving expectations, but the short-term stimulus effect on corporate recruitment demand was not obvious, and companies were still cautious and wait-and-see. The company stated that around the Spring Festival in '25 (after the renewal status of corporate customers before the Spring Festival and the release of recruitment demand after the Spring Festival) or the core observation point for next year's demand changes.

The results of streamlining the organizational structure and personnel have been shown. 1) 3Q gross margin increased by 0.6ppt to 76.6%, mainly due to gross margin control of project-based products and cost-side cost reduction and efficiency. The company expects gross margin to maintain a year-on-year upward trend throughout the year. 2) Under the promotion of measures such as streamlining the company's sales and R&D team structure, strict control of cost budgets, and refined management of customer acquisition channels, 3Q and 3 fees also decreased by 14.9%. Looking at the breakdown: sales expenses also decreased by 21.2% to 0.193 billion yuan, and the sales expense ratio decreased by 5.4ppt to 38.5%, mainly due to 3Q once again adjusting the sales team structure and continuously optimizing sales efficiency; R&D expenses also decreased by 21.3% to 70.19 million yuan, and R&D expenses also decreased by 2.0ppt to 14.0%; management expenses also increased 10.4% to 92.74 million yuan, mainly due to sales and R&D team structure optimization, which also showed a year-on-year downward trend. Looking ahead, the company maintained the 10-15% year-on-year reduction in three fees for the full year of '24. We expect a year-on-year recovery in profit margins for the full year of '24. It is recommended to focus on the potential positive effects of cost reduction and efficiency on the subsequent profit side.

Profit forecasting and valuation

We believe that there is currently no clear inflection point on the recruitment industry side, but it is recommended to continue to pay attention to the company's own cost reduction and efficiency results and potential flexibility under the pro-cyclical nature of the industry. Considering that the current industry is still relatively weak, the company's revenue guidance remains unchanged for 24 years, and the current downward pressure on repayment is still present, we have almost kept our revenue unchanged for 24 years, reducing our revenue by 9.5% to 1.91 billion yuan in '25. Considering the cost and expense side compression, we raised our 24/25 profit forecast by 20.4%/18.2% to $0.133/0.136 billion, respectively. We maintained our industry performance rating. Considering the upward shift in the industry valuation center, we raised our target price by 40% to HK$3.5, corresponding to 12.5/12.4x 24/25e non-IFRS P/E, and the current stock price corresponds to 10.7/10.6x 24/25e non-IFRS P/E and 17% upward space.

risks

The effect of implementing the policy on stimulating recruitment fell short of expectations, the effect of reducing costs and increasing efficiency fell short of expectations, competition intensified, etc.