Together with the better monthly macro data, Beisen's Sep bookings rebounded strongly. We see the lock-up expiry on 13 Oct as an event that may bring additional volatility and liquidity.

Bookings recovered in Sep; but cannot avoid a full year downward revision: Beisen saw 30+% YoY growth in Sep new bookings, compared to high single-digit YoY growth in Apr-Aug; this helped boost FY1H24 bookings growth to >20%, and it attributed the sharp recovery to accelerated customers decision cycles and better demand. This encouraging change echoes the recent improvement in macro monthly data, and we expect it to sustain with more easing policies and low base. The rebound was particularly strong for CoreHR, while Recruitment and Assessment modules just reversed the previous declining trend. Factoring in the April-August performance due to weak macro and job market, we forecast 12-13% revenue growth in FY1H24 and lower our FY24 forecast from 24% YoY to 17%.

FY1H24 preview: Improving operational metrics; SBC to distort the reported numbers. We expect 7-8ppt GPM improvements (ex-SBC) in 1H, driven by (1) CoreHR is becoming more standard and mature, and (2) rebound in implementation margins without the impact of lockdown, which jointly more than offset the lower revenue contributions from the high-margin Recruitment and Assessment modules. We forecast lower opex ratio across the board, leading to narrower normalized net loss. The reported net loss, however, should widen due to higher SBC amortization (~Rmb300mn) and fair value changes of redeemable convertible preferred shares (Rmb2.8bn), both related to the high valuation at IPO. We note they are both non-cash by nature and recommend focusing on the normalized numbers. We expect the impact from these factors to subside in FY2025.

End of lockup for Round A-E pre-IPO investors could introduce additional volatility and liquidity. Beisen's share price has been quite volatile after being included in the Stock Connect scheme with a record intra-day movement up to 70%. From a trading perspective, the next event to watch in our view will be the lock-up expiry on 13 Oct. Although we expect more selling pressure after that, potential liquidity improvement should help it get onto more investors' radar.

We stay OW on attractive valuation. We lower our FY24/25/26 revenue estimates by 6%/10%/13% to factor in weaker macro and update FX assumption to spot rate. Our PT reduces to HK$10. Its current 2.2x/1.9x FY24/25 EV/sales looks the most attractive to us among peers. Particularly for EV/ARR, the most relevant metric for pure SaaS players, 2.6x/2.1x FY24/25 looks more attractive than peers.