The number of flexible employees continues to increase in April, and the business boom is constantly being realized. with the good recovery of downstream customer demand and the continuous appearance of the company's economies of scale, it is expected to continue the good financial performance of Q1 in the following quarters. it has strong performance flexibility throughout the year. In the medium to long term, 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 room for growth, and the current stock price is at a low valuation.
The April data were in line with expectations, and the number of flexible workers continued to increase. The company announced flexible employee data in April, with a total of 37963 employees by the end of April 2021, an increase of 1591 from March, a month-on-month growth rate of 4.4%, in line with expectations; an increase of 12065 people at the end of April last year, a year-on-year growth rate of 46.6% (vs. At the end of March compared with the same period last year + 42.3%), continued the super-high growth of 40% +. January and February are the off-season in the recruitment industry, especially in February, affected by the Spring Festival holiday and other factors, the number of people has declined periodically, which is a normal phenomenon in the industry, and then with the arrival of the peak recruitment season in March and April. the flexible employment of the company is growing rapidly, with an increase of 2000 in March and 1500 in April. If the growth rate of about 1500 per month continues in the following months, the number of flexible workers is expected to reach nearly 50000 by the end of 2021.
Looking back on 2021Q1, the brilliant results laid the foundation for the whole year. 2021Q1 achieved an income of 1.016 billion yuan (+ 59.5%), with an operating profit of 43.67 million yuan (+ 60.6%), an operating profit of 43.67 million yuan (+ 60.6%), a profit of 34.7 million yuan (+ 26.6%) and an adjusted net profit of 39.5 million yuan (+ 44.2%). Under the low 2020Q1 base and the high scale of 2021Q1 flexible employment business, the performance recorded rapid growth. According to the profit margin indicator, the gross profit margin of 2021Q1 is 8.3% (+ 0.4pct, which is about + 0.9pct if social security deductions were added back last year), and the adjusted net profit rate is 3.9% (- 0.4pct, which is about + 0.8pct after excluding foreign exchange gains and losses). The negative impact of the epidemic gradually dissipates, resulting in increased profitability, and we expect the management radius to remain high.
Benefit from the high growth of the industry, actively explore a new track. The epidemic 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.
Burning knowledge Consulting expects China's flexible employment market 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 income and 2.3% of population in 2020). At the same time, the company is actively exploring new tracks. In 2020, the company established IT Outsourcing Division to extend to positions with higher gross profit (IT outsourcing gross profit margin may reach 20%). The company's new economy customers are rich in resources and have leading recruitment capabilities. IT outsourcing business is worth looking forward to; new development of medical services, online education, community e-commerce, Internet payment, new energy vehicles and other vertical areas to cultivate future growth points.
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 advice: the company's 2021Q1 annual performance is excellent, and the number of flexible workers in April continues to maintain a year-on-year growth of 40% +. Due to the good recovery of downstream new economy customers and the continuous appearance of the company's scale effect, the business performance in 2021 is expected to maintain high flexibility. In the medium and long term, the company is one of the main beneficiaries of the rapid expansion of the domestic flexible labor industry, leading in scale and human efficiency, and maintaining in-depth cooperation with new economy customers, can share the rapid growth of the new economy industry, and has significant room for growth. The net profit forecast is 2.35 / 314,408 million yuan for 2023, and the current price corresponds to 2021 PE 2022 for 13x/10x/8x in 2023.
We forecast a net profit CAGR of 31.9 per cent for 2021-2023. Taking into account future performance growth expectations and comparable company valuations, we give the company a further 10 per cent liquidity discount in 2021 and an one-year target price of HK $50, maintaining a "buy" rating.