Adoption Of AI And HarmonyOS Will Improve Operational Efficiency In Emerging Industries

Key Takeaways

• Focus on emerging industries and leveraging AI technology could boost revenue growth and broaden the user base.
  
• Cost reduction strategies and technology integration aim to enhance net margins and operational efficiency.
  
• Reliance on cost control amid declining recruitment market and macroeconomic challenges may limit profitability and impact future earnings recovery prospects.

Catalysts

An investment holding company, provides talent acquisition services in the People’s Republic of China.

• The company is focusing on expanding high-quality corporate clients in emerging industries like electronics, semiconductors, and new energy, which are experiencing growth in job postings. This could drive future revenue growth.
  
• The company has implemented cost reduction and efficiency improvement strategies through organizational restructuring and marketing strategy optimization. This is expected to impact net margins positively.
  
• Product innovation and technological upgrades, such as the development of AI products and the HarmonyOS version, aim to enhance R&D efficiency and reduce costs, which could improve operating margins and earnings.
  
• The company is leveraging AI technology to offer more efficient job matching and cost-effective intelligent matching services, potentially attracting a broader user base and increasing revenue.
  
• The integration of the Duolie RCN platform with the group's internal product delivery system is expected to enhance management efficiency and reduce operational costs, contributing to improved net margins.

Tongdao Liepin Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tongdao Liepin Group's revenue will decrease by 0.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.4% today to 12.6% in 3 years time.
• Analysts expect earnings to reach CN¥271.5 million (and earnings per share of CN¥0.46) by about February 2028, up from CN¥51.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.8x on those 2028 earnings, down from 39.3x today. This future PE is lower than the current PE for the HK Interactive Media and Services industry at 14.2x.
• Analysts expect the number of shares outstanding to decline by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.16%, as per the Simply Wall St company report.

Tongdao Liepin Group Future Earnings Per Share Growth

Risks

• The mid-to-high end recruitment market is still under pressure, with a decline in new job postings and a year-on-year revenue decrease of 10%, which could impact future revenue growth.
  
• Despite implementing cost reduction and efficiency improvement strategies, the group's cash billings remain under pressure, suggesting potential challenges in maintaining stable earnings.
  
• Industries that previously absorbed a large amount of mid-to-high end talent, such as real estate, finance, and Internet sectors, continue to face a downward trend in new positions, which could affect revenue from core recruitment services.
  
• The group's operating expense ratio and total expenses have decreased; however, reliance on cost control to drive profitability in a slowing market may limit net margin improvements if revenue growth does not rebound.
  
• Given the dependence on macroeconomic conditions and policy implementation for market recovery, there is uncertainty around how quickly these factors will positively influence recruitment demand and financial outcomes, posing risks to projected earnings and profitability.

Valuation

• The analysts have a consensus price target of HK$4.468 for Tongdao Liepin Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$5.73, and the most bearish reporting a price target of just HK$2.99.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥2.2 billion, earnings will come to CN¥271.5 million, and it would be trading on a PE ratio of 9.8x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of HK$4.23, the analyst price target of HK$4.47 is 5.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.