What we liked:

• Improved durability: Logo retention rate improved 4ppt to 80%, existing customer ARR mix increased to 80% and average module adoption increased from 1.6 to 1.8, all point to a more durable revenue growth in the future. Net dollar retention rate stabilized at 106%.

• ARR growth: CoreHR was up 31%YoY, performance management was up 23%YoY and e-learning was up 68%YoY. Beisen expects e-learning to sustain rapid growth, as it started to sell it as an independent module recently.

• GPM improvements: Beisen's non-GAAP GPM improved by 8.6ppt to 64%, mainly driven by software margin improving to 82% as well as normalization of service revenue margin.

• Bottom line beat: FY24 reported normalized net loss and cash outflow are better than MSe on cost control.

• Outlook: FY25 guidance of 15% revenue growth, slightly better than 13.8% in FY24, and operating cash flow turnaround. Beisen targets 25% market share in China HCM SaaS market in three year vs ~15% in 2023.

What we are monitoring:

• Subdued recruitment demand: The result implied that recruitment related ARR growth remained a drag on the firm's blended ARR against the current macro backdrop, although recruitment is becoming smaller in its ARR pie. Based on our updated forecast, Beisen is currently trading at 3.5x FY25e P/S (slightly below peer Kingdee of 3.8x), but only 1.7x FY25 EV/sales (vs. Kingdee of 3.3x), suggesting no credit to Beisen's Rmb1.72bn net cash. We believe the cash flow turnaround in FY25 will bring more confidence to the market. Stay OW.