Beisen Holdings is the largest cloud-based human resource management (HCM) solution provider in China. The company started with an evaluation service and has now transformed into an HR SaaS vendor. The business can cover the entire human resources management life cycle. The company's core competitiveness lies in: 1) Market share leadership: Since 2016, Kitasen has maintained the number one HCM SaaS market in China for seven consecutive years. According to IDC, Kitasen's market share in terms of revenue reached 15.3% in the first half of 2023. 2) Industry first: Beisen is the first and only platform in the industry to provide integrated cloud applications, and is also the only supplier of cloud HCM solutions that have built a unified and open PaaS platform.

HCM digitalization can be expected, and cloud deployment has become a new trend. 1) There is plenty of room for improvement in the digital transformation of human resources management in China. China's digital HCM market reached 18.9 billion yuan in 2021. The digitization rate is only 2.9%, far lower than the US 9.9%. Insight Consulting expects to increase to 59 billion yuan in 2027, but there is still plenty of room for development compared to the US market size of 139.5 billion yuan. 2) Cloud deployment is gradually replacing local deployment as a new trend. The compound growth rate of China's cloud HCM market in 2017-2021 is 27.7%. The market size is expected to grow from 5.5 billion yuan in 2021 to 34 billion yuan in 2027, overtaking local HCM deployment.

The advantages of cloud integration are remarkable, bringing together core human resources management. Kitsen focuses on enterprises that can accept public clouds and have digital needs for human resources and talent management. It focuses on the cloud HCM market rather than localized deployments. Product aspect: 1) Kitsen provides six core product modules for recruitment, evaluation, core manpower, performance, succession, and learning, covering the entire human resources management process. 2) The company officially launched the PaaS-based TalentX7.0 version, completed more than 1,000 scenario optimizations, and iteratively added more than 2,000 features; product performance updates and iterations brought cross-selling opportunities and improved sales efficiency. User side: 1) The number of the company's customers has grown steadily, from 3334 in FY19 to 5341 in FY24H1. Most of the customers are medium and large enterprises, with strong resilience to risk and high stability in service demand. 2) Beisen uses a subscription model. In recent years, the customer subscription revenue retention rate has remained above 100%, and the ARR (annual recurring revenue) growth rate of FY21-FY22 customers has remained above 30%. 3) Multi-module purchases have become a trend. The ARR share of FY24H1 multi-module subscribers reached 71.40%, and the average ARR per customer increased steadily, from 78,700 yuan for FY19 to 1312,000 yuan for FY24H1. 4) Core HCM, a key product, includes three basic functions: HR Cloud, Fake Qin Cloud, and Payroll Cloud. As of FY24H1, Core HCM has accumulated 1,677 customers, an ARR growth rate of 35.1%, a revenue retention rate of 114%, and a renewal rate of 95% for the number of customers.

Profit forecasting, valuation and ratings: China's digital HCM market space is huge, and cloud HCM is growing significantly. Driven by policies and increased digital demand in the HR field, the number of company customers is expected to increase further; the company's products have significant advantages in cloud integration, gathering core manpower management, and iterative product performance updates also bring cross-sales opportunities. We expect FY24-FY26 to achieve operating revenue of 8.6/10.5/1.23 billion yuan (yoy +14%/+22%/+17%). Beisen Holdings is a leader in cloud HCM solutions, has certain scarcity, first-time coverage, and a “buy” rating.

Risk warning: macroeconomic recovery falls short of expectations, increase in HR SaaS penetration falls short of expectations, and market competition intensifies.