The company's 2020 income is in line with expectations, its performance is higher than expected, the number of flexible workers has achieved higher growth, the income growth rate is significantly higher than the industry level, and the advantages of scale and human efficiency continue to show. With the recovery of downstream customer demand, 2021H1 operating performance is expected to continue to maintain high elasticity. The company is one of the main beneficiaries of the rapid expansion of the domestic flexible employment industry, and is expected to share the rapid growth of the new economy industry, with significant medium-and long-term space, maintaining an one-year target price of HK $49.90 and a "buy" rating.

The revenue is in line with expectations and the profit is higher than expected. In 2020, the company achieved revenue of 2.83 billion yuan (+ 23.7%), including flexible labor of 2.576 billion yuan (+ 19.8%), professional recruitment of 69 million yuan (+ 9.1%), business process outsourcing of 151 million yuan (+ 190.9%), and other human resources solutions of 34 million yuan (+ 58.2%).

In 2020, the company achieved an adjusted net profit of 183 million yuan (+ 36.5%), and its performance exceeded expectations (the company's guidelines are + 20% and 30%), which is mainly related to the good recovery of downstream customer demand, the improvement of management radius, exchange gains and other factors. 2020H2 realized income of 1.634 billion yuan (+ 35.1%) and adjusted net profit of 130 million yuan (+ 71.8%). In 2020, the top five customers accounted for 53.2% (- 0.9pct), and the largest customers accounted for 38.6% (+ 4.3pcts). The head customers still maintained a high degree of concentration.

There has been a high growth in the number of flexible workers, and the management radius has continued to improve. By the end of 2020, the company had 35762 flexible employees (+ 42.4%), of which 87.8% were allocated to new economy customers (+ 5.7pcts). The growth rate of flexible employment business income is 19.8%. Excluding the reduction or reduction of some service fees, the growth rate is 28.9%, which is significantly better than the industry's growth rate of 12.1%. However, due to the impact of the epidemic, flexible labor gross profit margin dropped to 7.4% (- 1.5pcts). Thanks to the control of senior consultants and resident teams, the staff turnover rate has been reduced to 9.0% (- 0.9pct). At the end of 2020, the per capita management of flexible employees in the flexible employment service department increased to 232 (the number of flexible employees at the end of vs. 2019), and the management radius continued to improve.

The expense rate has declined steadily, and the turnover rate of receivables has remained benign. The company's comprehensive gross profit margin was 9.6% (- 0.9pct) in 2020, mainly due to a decline in flexible labor margins in its core business. The company's sales expense rate is 1.9%, R & D expense rate is 0.5%, which is basically the same as the same period last year; the management expense rate is 2.6% (- 1.3pcts), mainly because there are no listing expenses in that year. The number of days of turnover of trade receivables was 54 days, which was the same as the same period last year and maintained a healthy turnover. The operating cash flow is 156 million yuan (+ 3.4%), and the cash flow is good.

Benefit from the growth of flexible employment industry and share the dividend of new economic development. Although the epidemic has a short-term impact on the industry, it objectively promotes the infiltration of the concept of flexible employment, and the overall recovery of new economy enterprises is relatively rapid, and the demand for flexible employment is growing. The flexible employment market is expected to grow by 20.6% in 2021, and the company, as the largest flexible employment service provider, is expected to benefit from the high growth of the industry (3.1% of the revenue market in 2020). In addition, the company plans to adopt the "partner Entrepreneurship Plan" to actively explore the cross-track of IT positions, and the scale expansion of business process outsourcing (BPO) business is expected to form a new growth point of the company in the future.

Risk factors: the renewal rate of the head customer is lower than expected; the competition in the flexible employment industry is intensified; the growth rate of the new economy industry is lower than expected.

Investment suggestion: the company's performance in 2020 exceeded expectations, the number of flexible workers increased, and the management radius continued to improve. Due to the relatively low 2020H1 base and the good recovery of downstream customers after the epidemic, 2021H1 operating performance is expected to continue to maintain high flexibility. The company is one of the main beneficiaries of the rapid expansion of the domestic flexible employment industry, leading in scale and human efficiency, and maintaining in-depth cooperation with customers in the new economy, so it can share the rapid growth of the new economy industry, with significant room for medium-and long-term growth. It maintains the net profit forecast of 235,314 million yuan in 2021 in 2022, increases the net profit forecast of 408 million yuan in 2023, and maintains the one-year target price of HK $49.90 and "Buy" rating.