AI Recruitment Efficiency Will Lower Costs And Expand Market Coverage

Key Takeaways

• Integration of AI technologies enhances efficiency, reduces costs, diversifies revenue, and drives growth across recruitment and various sectors.
  
• Financial strategies to improve investor confidence aim for better earnings, stock appreciation, and stable profit margins amidst market uncertainties.
  
• The company's recovery and revenue growth are challenged by subdued recruitment demand, uncertain economic impacts, cost-cutting effects, and significant AI investment needs.

Catalysts

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

• The integration of AI technology across recruitment processes is expected to drive revenue growth by attracting new customers, expanding market coverage, and enhancing customer retention and satisfaction through improved efficiency and cost-effectiveness.
  
• The upgraded AI-powered recruitment solutions, including Liepin Pro and the intelligent interviewer Doris, are expected to significantly reduce operational costs and improve profit margins by decreasing the marginal costs of recruitment processes while increasing efficiency.
  
• The expansion to AI applications in various sectors, such as government, universities, and blue-collar segments, is projected to contribute to revenue diversification and growth by tapping into large-scale interview demands and providing tailored services.
  
• The introduction of a special dividend and exploration of diversified return plans for shareholders is likely aimed at improving earnings per share by stabilizing investor confidence and attracting long-term investments, potentially leading to stock appreciation.
  
• The emphasis on cost reduction and efficiency enhancements, coupled with solid cash reserves and improved cash flow, is expected to support profit and net margin improvement, providing a stable financial foundation to weather market uncertainties and capitalize on growth opportunities.

Tongdao Liepin Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tongdao Liepin Group's revenue will grow by 4.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.4% today to 11.1% in 3 years time.
• Analysts expect earnings to reach CN¥264.5 million (and earnings per share of CN¥0.52) by about April 2028, up from CN¥133.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥292.0 million in earnings, and the most bearish expecting CN¥237 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.4x on those 2028 earnings, up from 13.6x today. This future PE is lower than the current PE for the HK Interactive Media and Services industry at 14.7x.
• 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 8.3%, as per the Simply Wall St company report.

Tongdao Liepin Group Future Earnings Per Share Growth

Risks

• The mid
• to high-end recruitment market has not fully recovered in 2024, with a decline in overall job postings and recruitment demand, impacting the company's revenue generation potential.
  
• In 2024, the company experienced a year-on-year decrease of 8.8% in total revenue, driven by low recovery in recruitment demand for mid
• to high-end talent, which directly affects their revenue outlook.
  
• Despite AI product innovations, the full impact of macroeconomic policies supporting recovery has yet to be realized in the recruitment market, creating uncertainties around revenue growth and market stability.
  
• While operating expenses have decreased due to cost-cutting strategies, these measures might impact long-term investments in growth and expansion, potentially affecting future revenue and profit margins.
  
• The adoption and expansion of AI technologies require significant investment, and while the marginal cost may decrease over time, the immediate costs could challenge net margins if revenue growth does not align with these investments.

Valuation

• The analysts have a consensus price target of HK$6.321 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$7.25, and the most bearish reporting a price target of just HK$5.65.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥2.4 billion, earnings will come to CN¥264.5 million, and it would be trading on a PE ratio of 14.4x, assuming you use a discount rate of 8.3%.
• Given the current share price of HK$3.74, the analyst price target of HK$6.32 is 40.8% higher.
• 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.