Goldman Sachs has released a research report maintaining its revenue forecast for BEISEN HOLDING (09669) for FY27 largely unchanged. Considering operational leverage release exceeded expectations, the bank has raised its adjusted net profit attributable to the parent company by 5.8% to RMB113 million. It introduces FY28 revenue and adjusted net profit forecasts of RMB1.49 billion and RMB200 million, respectively. Goldman Sachs maintains its Outperform rating on the stock. However, factoring in a downward shift in the industry's valuation benchmark, it has lowered the target price by 48% to HK$6, based on 2.8 times the FY27 price-to-sales ratio. The company currently trades at 1.7 times its FY27 P/S ratio, implying a potential upside of 67%.

Key Analyst Perspectives

Revenue met market expectations, while adjusted net profit significantly exceeded them. BEISEN HOLDING reported its FY2026 results, with revenue increasing 16.9% year-on-year to RMB1.105 billion, aligning with market consensus. Adjusted net profit swung from a loss of RMB29.1 million last year to a profit of RMB55.49 million, marking its first full year of adjusted net profitability and greatly surpassing market expectations, primarily due to effective cost control.

Product Revenue and AI Platform Developments

Product revenue continued its steady expansion. Cloud-based HCM solution revenue grew 19.8% year-on-year to RMB864 million, accounting for 78.2% of total revenue. Annual Recurring Revenue increased 13% to RMB1.029 billion, with ARPU rising 4.6%. Subscription revenue retention reached 106%, and customer retention stood at 83%. The core product, Core HCM solution ARR, grew 23% year-on-year, increasing its share of total ARR to 59%. Regarding AI applications, contract value during the period exceeded RMB87 million, with newly signed contract value growing more than tenfold year-on-year. ARR exceeded RMB74 million by the end of May and maintained an accelerating growth trend. The average contract value per customer doubled to RMB59,000, and penetration among existing customers increased to over 15%. Management indicated during the results briefing that the company will launch Mavens, an integrated AI HR expert platform, designed to work alongside human HR professionals in areas such as strategic operations, talent acquisition, leadership development, talent growth, and training/learning operational services. Looking ahead, the bank believes contract values for new AI-related products have the potential to double.

Profitability and Future Outlook

Profitability showed further improvement, achieving its first full year of adjusted net profit. For FY26, the adjusted gross margin reached 68.5%, up 2.3 percentage points year-on-year. The adjusted net margin reached 5.0%, an increase of 8.1 percentage points, turning positive for the full year for the first time, mainly attributed to effective cost control and improved R&D efficiency. The adjusted net margin for the second half of FY26 was 6.1%, improving by 2.3 percentage points compared to the first half. Operating cash flow showed a positive inflow of RMB155 million. Looking forward, the bank anticipates that despite increased investment in AI, the adjusted net margin will further improve thanks to the release of operational leverage.

Associated Risks

Key risks include a weaker macroeconomic environment and potential shortfalls in product iteration or technology application.