Tongdao Liepin Group
HKEX:6100
Earnings Call Analysis
Q4-2023 Analysis
Tongdao Liepin Group
In 2023, the company experienced remarkable success with its Overall Cash Flow (OCF) of the Recruitment Consultant Network (RCN) exceeding RMB 100 million. Optimistically, they anticipate this volume to potentially double in the current year, propelled by an increase in cooperative orders.
The company's strategic move in co-hosting the Hong Kong International Talent Carnival integrates its growth narrative into the overseas landscape. This event was not only significant as the largest talent summit in the Greater Bay Area but also symbolizes the company's commitment to extending its realm beyond domestic boundaries, setting the stage for future international business ventures.
Despite hindrances due to external environmental uncertainties since 2024, the company showcases resilience with its business demonstrating gradual quarterly recovery. They are poised to leverage advanced AI technology to enhance their product offerings while emphasizing a balance between business evolution, cost control, and efficiency. This meticulous approach aims to safeguard investor interests in tumultuous times.
While the fourth quarter of 2023 saw a minuscule uptick in revenue at 0.9% year-on-year, reaching RMB 630 million, the annual figures tell a different story. Total revenue for the year faced a 13.5% decline from the previous period, summing up to RMB 2.28 billion. Such fluctuations underline the need for cautious optimism and strategic agility in orchestrating the company's operational maneuvers.
A segmented analysis of revenue streams reveals a 13.8% drop in talent acquisition and other human resource services for business customers, citing a total of RMB 2.02 billion. Concurrently, revenue from talent government services for individuals also declined by 11%, indicating a pervasive need for a more robust policy and market revival across the board.
Liepin's gross profit suffered a 17.2% reduction to RMB 1.7 billion, alongside a decrease in gross profit margin to 74.3%. This contraction indicates pressure on profitabilities, such as costs that remained static despite falling revenue and shifts in product mix favoring outcomes over higher margins.
The company successfully reduced its total operating expenses by 11.2% to RMB 1.82 billion in 2023. Research and Development (R&D) expenses saw a 10% cut, reiterating the company's commitment to efficient innovation. Vigilant about sales and marketing expenditures, the company reported a 17.2% savings amid a strategic shift towards high ROI advertising channels.
General and Administrative (G&A) expenses rose by 10.2% to RMB 380 million, due to one-off factors like impairment of goodwill and once-off RSU grants. Despite revenue decline, the company managed to secure a net profit of RMB 16.63 million, demonstrating resilience against a backdrop of revenue constriction and cost pressures.
A non-GAAP perspective shows a more sanguine profit of RMB 120 million, attributing RMB 110 million to shareholders. This outlook is supported by a notable positive cash flow turnaround in the latter half of 2023, reversing a prior net outflow and reaching RMB 18 million for the year. These indicators reflect disciplined financial stewardship and a focus on long-term value creation.
With solid cash reserves approximating RMB 2.8 billion, the company is well-equipped financially to pursue future development, market outreach, and innovative product solutions. Additionally, ongoing optimization of the company's shareholder structure exemplifies its commitment to a sustainable corporate framework conducive to growth.
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Good day, and welcome to the Tongdao Liepin Group 2023 Q4 and Full Year Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Xueni Wang. Please go ahead.
Hi, everyone. Thank you for joining us on today's conference call to discuss our results for the fourth quarter and full year 2023. The company's financial and operating results were published and were posted on the company's IR website at ir.liepin.com. On today's call, Mr. Rick Dai, company's Chairman and CEO, will kick off with our business operations and highlights. After that, Mr. Ge Tian, our CFO, will continue with detailed financial review. The remarks will be in Chinese followed by English translation.Before we continue, I would like to remind you that this call may contain forward-looking statements made under safe harbor provisions. Such statements are based on management's current expectations and current market and operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond the company's control, which may cause the company's actual results, performance or achievements to differ materially from those in the forward-looking statements.Further information regarding these and other risks, uncertainties and factors are -- is included in the company's filings with the Hong Kong Stock Exchange. The company does not undertake any obligation to update any forward-looking statements, as a result of new information, future events or otherwise, except as required under law.Please also note that all financial measures are in RMB, unless otherwise stated. And certain financial measures that we used on this call are expressed on a non-GAAP basis. Our GAAP results and reconciliation of GAAP to non-GAAP measures can be found in our earnings press release.I will now turn the call over to our Chairman and CEO, Rick. Please go ahead, sir.
[Foreign Language]
[Interpreted] Dear, investors, greeting, and welcome to Tongdao Liepin Group's 2023 annual earnings release conference call. On behalf of our Group, I would like to express our sincere gratitude to all investors, who have supported and trust us over the years. I would also like to extend my heartfelt thanks to all our employees for their hard work and dedication throughout the year. 2023 was a challenging year for the recruitment industry. However, we embraced changes, actively faced various challenges, and successfully adjusted our product and sales strategies.For the full year, our Group achieved a total revenue of RMB 2.28 billion, a year-on-year decrease of 13.5%. In the fourth quarter, both are our cash billings and revenue turns [Technical Difficulty].
[Foreign Language]
[Interpreted] In 2023, we witnessed the full reopening, but we also saw the mismatch between the macroeconomic recovery and adjustments of enterprises operation and organizational structure at macro level. This posed a severe challenge to the entire recruitment industry, especially for white-collar recruitment. [ Insufficient ] job demand became the main theme of the year with a trend showing that the second half of the year was slightly better than the first half.In terms of job types, business development and marketing-related positions showed a more noticeable recovery. Over the past 2 years, there has been a significant shift in relationship between job supply and talent availability across industries. Talent remains relatively scarce in professional services and high-end manufacturing industries, making recruitment more difficult. In contrast, the job demand in electronics and communications, health care and Internet have decreased compared to 2022, while the supply of talent is relatively abundant, reducing recruitment difficulty.From the perspective of new job postings, the recovery of recruitment demand in pillar industries, which account for a large portion of the economy and employment capacity remains low. In terms of the skill set of [ high-end ] positions, employers are increasingly valuing cost effectiveness, stability, professional capabilities and creativity, especially amidst the AI wave, more and more positions require candidates to have the ability to learn and use new technologies.
[Foreign Language]
[Interpreted] Our behavior reveal 2 distinct patterns. The employee made to high-end talents are more cautious about changing jobs, while unemployment candidates remain active in the recruitment market, taking positions with greater stability and maintaining more rational salary expectations. The average annual salary of job seekers on our platform in 2023 was about RMB 200,000, about flat versus last year.In terms of talent mobility trends, first-tier and new first-tier cities remain the main destination for talent employment. However, new first-tier cities demonstrated a particular strong potential for attracting talents in 2023. This shift is attributed to involving talent preference in job selection, alongside the cumulative benefits of new era and urban cultural heritage, including policy incentives, industrial advancement and better living conditions.In terms of talent distribution or cross generation, new first-tier cities have surpassed first-tier cities in attracting [ post-'90s ] and post 2000 talent. Responding to the talent mobility patterns, we have focused more on the protection of our marketing measures in recent years, controlling costs and improving customer acquisition ROI. In 2023, our total registered individual users reached approximately 95 million, a year-on-year increase of 12.6%. At the same time, we have seen a continuous improvement in the quality of new users with both our complete resume rate and individual user activity levels reaching new highs.
[Foreign Language]
[Interpreted] Our registered business users reached 1.294 million in 2023, a year-on-year increase of 14.5% last year. Low and medium-sized enterprises showed slightly better recruitment activity than large enterprises. Based on our observations of the trend and characteristics of the recruitment market for both business users and individual users, we made targeted adjustments to our product operations and sales strategy.While stabilizing the renewal of standard packages for large enterprises, we launched lightweight packages tailored for SMEs from the third quarter of last year, and This move proved very effective in attracting new paying business customers. By cultivating the platform user habit of these users, we've increased the number of active job postings, therefore, enhancing the platform ecosystem. We also look forward to leveraging future user growth.Over 2 quarters, our paying business customers have grown significantly, leading to a year-on-year increase in the number of paying business customers to 72,000, reversing the declining from the first half of the year. This year, we have established the customer acquisition center team, which will focus on user acquisition and intensify our efforts to attract new customers.
[Foreign Language]
[Interpreted] In order to enhance the recruitment efficiency of our platform and provide a superior product experience for our users, we actively embrace cutting-edge technology and continuously refine our products. Utilizing our extensive recruitment knowledge and robust user behavioral data, we have conducted application level secondary development of open source large language models. This has enabled sophisticated analysis of resumes and job descriptions, automatic generation of talent matching reports and efficient intelligent services, such as mass AI communication.In the first quarter of this year, we introduced an AI smart interviewer, Doris, a product that integrates AI and advanced assessment technology to assist HRs in mass interview assessments. This product replicates the interaction between candidates and human interviewers, covering functions such as resume-based questioning, multi-layer in-depth flow of multi-model comprehensive analysis and multilanguage input. It produces a comprehensive evaluation report for candidates.At the same time, through a full process anti-cheating system, it greatly safeguards the authenticity and effectiveness of the interview results. Initial user feedback confirms that the product outcomes are largely in line with those from human HR interviewers. This is very encouraging, and those are our confidence in the AI recruitment consultant product planned for launch in the middle of this year for business and individual users.
[Foreign Language]
[Interpreted] Another project we have on the recruiting cooperation network, Duolie RCN is a product and a new business model that we have dedicated significant energy and R&D resources over the past 2 years, particularly in the current condition, where headhunting industries is under pressure. Our goal is to integrate idle resources in headhunting industry and address key issues, notably the low efficiency of talented job matching.We are committed to deeply penetrate the headhunting market through digitization and platformization of services. We launched this product to the headhunting industry in September last year. And by the end of the year, we have established deep cooperation with nearly [ 6,500 ] firms, covering over [ 1,600 ] high-quality headhunters in more than 100 cities nationwide.With our [ cooperative ] ecosystem, more than 70% of the headhunting firms have participated in order delivery and more than 40% of them have shared drop orders. Duolie RCN provides scalable solutions for headhunting companies, helping them to transform accumulated -- accumulate successful experiences and thereby expand their business revenue.We will continue to optimize the Duolie RCN product, innovate cooperation models and promote overall efficiency improvement and revolutionary upgrade of headhunting industry. In 2023, the overall cash flow of RCN exceeded RMB 100 million, and we expect this volume to grow 1x to 2x this year with the share of cooperative orders continuing to increase.
[Foreign Language]
[Interpreted] In addition, we closely monitor the overseas requirement needs of enterprise users and are continuously exploring commercial paths that can be standardized and [ scaled ]. The innovative Hong Kong International Talent Carnival co-hosted by us in Q4 last year was the largest international talent summit in the Greater Bay Area, nearly 100 exiting companies collected over 8,000 high-quality resumes on-site, with around 70% of participants holding masters or doctorate degrees.Our overseas brands, Liepin has established a strategic partnership with the organizing committee of the Innovation Hong Kong International Talent Carnival. In March this year, we launched the spring session for 2024, further enhancing our brand influence in the Hong Kong market and lay the foundation for accelerating our exploration of overseas business.
[Foreign Language]
[Interpreted] Since the beginning of 2024, we faced ongoing external environment uncertainties. The confidence of the [ mass like ] medium and large enterprises has not fully recovered, and the white-collar recruitment sector still requires a solid condition for growth. However, we also see policies being gradually implemented and taking effect, and we look forward to seeing a stronger economic recovery that will bolster the rebound of our operations.In 2024, we will further leverage AI technology to transform our staff serviceability into intelligent interactive features of our products, accelerating the product development process for recruitment plus AI. This will provide our clients with a more convenient and real-time user experience. We will also remain focused on balancing business development with cost control and efficient enhancement adhering to profit and cash flow [ in uncertainty ], and seeking technological innovation and business breakthroughs [ in certainty ], as an effort to reward investors, who accompany and support us. Thank you.
[Foreign Language]
[Interpreted] And this concludes my prepared remarks. Next, our CFO, Tian, will walk you through our key financial performance.
[Foreign Language]
[Interpreted] Thank you, Rick, and thank you all for attending our earnings release conference call for the fourth quarter and full year 2023. Overall, the mid to high-end recruitment market faced considerable pressure in 2023, and our financial and business performance also encountered challenges. However, we can see that our business is gradually recovering on a quarterly basis. A more stable market environment, and our proactive management actions have laid a foundation for our business recovery.In the fourth quarter of 2023, our company's total revenue was RMB 630 million, an increase of 0.9% year-on-year. Our cash billing and revenue have both turned positive year-on-year growth. For the full year of 2023, our revenue reached RMB 2.28 billion, a year-on-year decrease of 13.5%, with a decline narrowing further compared to the cumulative decline in the first 3 quarters.
[Foreign Language]
[Interpreted] Looking into details for the full year of 2023, our revenue for talent acquisition and other human resource services provided to business customers amounted to RMB 2.02 billion, a year-on-year decrease of 13.8%. Enterprises recruitment demand still [ awaits ] further restoration with policy and market support.On the other hand, in 2023, the revenue from talent government services provided to individual users was [ RMB 260 million ], a year-on-year decrease of 11%. Starting from the third quarter, benefiting from the recovery of the market environment and our deep refinement of -- for [ advantages ] categories, we have seen a recovery in the online servicing and training business provided to individual users, and this momentum will carry through in 2024.
[Foreign Language]
[Interpreted] In 2023, Liepin's total gross profit amounted to RMB 1.7 billion, a year-on-year decrease of 17.2% and the gross profit margin dropped to 74.3%. The decline in gross profit margin was mainly due to [ rigid ] costs despite the decrease in revenue, as well as structural changes in product mix. Since this year, enterprises have preferred to use closed-loop services and product-based services, which have stronger certainty in recruitment outcomes. We also delivered more product-based services this year, especially in the [ fourth ] quarter. SaaS products usually require some manual participation, resulting in lower gross profit margin.
[Foreign Language]
[Interpreted] The overall operating expenses of our Group in 2023 amounted to approximately RMB 1.82 billion, a year-on-year decrease of 11.2%. Breaking down the specific expenses, our R&D expenses declined to RMB 360 million, a year-on-year decrease of 10% compared to 2022. As Rick mentioned in his earlier remarks, we made various investments in AI production incubation, business model innovation and technological upgrades in 2023. Nevertheless, we also continuously improve the efficiency of our production and research personnel through AI empowerment and strengthen internal management, thus achieving a decrease in annual R&D expenses.
[Foreign Language]
[Interpreted] In terms of sales and marketing expenses, the company's total sales and marketing expenses for the year amounted to RMB 1.08 billion, a year-on-year decrease of 17.2%. [indiscernible] the marketing expenses experienced a significant year-on-year decline, primarily due to the absence of large-scale advertising investment like the 2022 World Cup in 2023. Excluding the impact of World Cup, our sales and marketing expenses still saw a decrease in 2023.Meanwhile, we have paid more attention to the efficiency of performance-based advertising and focus on channels with high ROI and cost effectiveness, achieving better advertising results through effective combination of different marketing channels.In terms of sales expenses, we continue to empower our sales personnel in 2023, improving their efficiency and making minor personnel optimization, which contributed to the decrease in sales expenses.
[Foreign Language]
[Interpreted] In 2023, our G&A expenses amounted to RMB 380 million, a year-on-year increase of 10.2%. The rising expenses was primarily attributed to 2 reasons.Firstly, in the second half of 2020, we invested in and consolidated a company with online professional certification training, as its core business. Since the acquisition, significant policy changes have occurred in this industry, which have adversely affected its valuation, resulting in a one-off impairment of goodwill this year. Secondly, a portion of onetime RSU was granted in 2023, which also contributed to a one-off increase in G&A expenses. Overall, the decline in revenue and the contraction of operating leverage had a certain impact on our profit.For the full year of 2023, our company's net profit amounted to RMB 16.63 million. The non-GAAP net profit was RMB 120 million and the non-GAAP net profit attributable to shareholders was RMB 110 million. More visible cost reduction and efficiency enhancement will be reflected in the financial performance of 2024.
[Foreign Language]
[Interpreted] In terms of cash flow, our company's operating cash flow performed well in the second half of 2023, despite a net outflow of approximately RMB 200 million in operating cash flow in the first half of the year. The net operating cash flow for the full year turned positive, reaching [ RMB 18 million ]. Despite the relatively challenging market environment, we maintained stable operations.Additionally, as of December 31st, 2023, our cash reserves stood at approximately RMB 2.8 billion, slightly increasing from the end of the third quarter, and this provides a solid condition for our future development, market expansion and product innovation.
[Foreign Language]
[Interpreted] In 2023, our company shareholder structure continued to be optimized. Based on that, we established a reward mechanism for both new and existing shareholders by introducing a 1-year share repurchase plan for the first time. During 2023, we repurchased approximately 11.36 million shares in total and will cancel them all. The repurchased share accounted for approximately 2.2% of our total shares, with a cost exceeding HKD 105 million, fully demonstrating the confidence of our Board and management team in our future development. We will also closely monitor market opportunities in 2024 and strive to gain greater market share through product innovation and strategic optimization.And this concludes my prepared remarks. Thank you.And operator, we are ready to open for questions.
[Operator Instructions] And we will go first to Citic.
[Foreign Language]
[Interpreted] The macro economy did show some signs of recovery in 2023, but the demand for high to -- mid- to high-end positions hasn't bounced back to the level we saw in 2021. The pace of recovery has been quite slow, and we've seen the off-line headhunting market shrank by around 30% in 2023, and the headhunting companies closed down by about 10% to 15%. These situations are quite challenging. But last year, looking at the number of new job postings on our platform, there was a sequential improvement throughout the year. The second half of the year saw a slightly better recovery trend than the first half. The total number of new job postings for the whole year of 2023 remained relatively flat versus last year with a 16% increase in the fourth quarter. And these changes are closely tied to the launch of our lightweight packages and service incentive strategies. So we achieved a slight increase in revenue in the first quarter.The number of new job postings in the first week after Spring festival increased by 24% compared to last year, and the overall number of applications increased by 42% year-on-year. This is a good start. But looking at the first quarter as a whole, it's reasonable to say that enterprises demand are still recovering. Based on our recent research on business users, the recruitment process for mid- to high-end talent is still relatively slow, but is expected to recover going forward. So to the business end, our Group's cash [ really ] in the first quarter will still show some pressure, with a positive upturn anticipated in the coming quarters. So the annual trend will be a slow start that builds to finish -- a strong finish.So in 2023, we bought back around HKD 110 million in total. So last year, we initiated our first year repurchase program since our IPO, a gesture of gratitude to our investors who have accompanied us, provide support and place their trust in us. In the first half of 2023, confront with the low recovery of market demand, we experienced significant operational pressure and negative net operating cash flow. In the second half of the year, through the launch of our lightweight recruitment packages and the implementation of internal cost saving measures, we managed to yield a modest inflow of net operating cash flow for the year. Yet, objectively speaking, we have not yet returned to the normal level of cash flow we've enjoyed in previous years.In the current macro environment with full of challenges and uncertainties, sustaining a healthy cash flow is vital for our company's long-term development. We need to balance the optimization of operating cash flow, opportunities for M&A and conducting R&D investments in new products for our company's long-term growth, and also to explore markets with more potential opportunities. So all of these activities may involve a significant cash outlay. So moving forward, we will explore more appropriate methods to reward our shareholders as our business recovers robustly with ample profits and cash flow. And we encourage everyone to view this matter with company's long-term development in mind.
We will next go to UBS.
[Foreign Language]
[Interpreted] In the third quarter of 2023, to better capture the rapidly recovering recruitment demand of SMEs, we launched a lightweight online recruitment [Technical Difficulty]. After nearly 9 months of operation, we have observed that this product have been well received by our customers and has generated positive feedback. So, as mentioned earlier, there has been a significant increase in the number of business customers. And in terms of business types, approximately 80% of our paying customers are SMEs with fewer than 500 employees. In terms of industries, we have seen a higher concentration in industries such as manufacturing, IT, Internet, professional services, transportation, logistics, and retail. So with the lightweight package, we are gradually breaking down the stereotype among some small business users who perceive our brand as being too premium, helping more SMEs address their talent needs for high-quality general positions.Looking ahead to 2024, the lightweight online recruitment package will continue to bring incremental new paying customers to our Group, especially in the SME sector. But given the relatively low price of the lightweight package, the overall ARPU of our current business customers will still be affected. And moving forward, we'll continue to explore the more diverse needs of SMEs in areas such as interviews and training, and refine the product details of the lightweight online recruitment package and continuously improve the ARPU of this segment. While at the same time, we will also assist customers in understanding the distinct features and advantages of both lightweight and standard packages, and thereby improving the conversion speed and efficiency from the lightweight package to the standard package. [Interpreted] We have always been actively embracing the advanced technologies aiming to empower the recruitment industry through technology. Over the past year, with reasonable investment in R&D, we have continuously explored scenarios where large language models can be implemented and commercialized in recruitment industry. So at the same time, we have also leveraged AI technology [ to withstand ] with our product development and sales capability and therefore, improving personnel efficiency. In 2024, we will continue to focus on the innovation and launch of AI recruitment products providing a more seamless and efficient job to talent management process for all of our users.So back to the R&D expenses front, our investments in AI is sourced from savings generated by our existing operations, which is the structural adjustments and there will be no extra expenditures added in 2024. So the total R&D expenses are expected to remain stable. And with the deepening application of technology, our R&D efficiency will also see continuous improvement and our R&D expenses will potentially further decrease in the long-term. And also some management measures taken last year will directly yield tangible results this year such as the reduction of rent, the control in marketing spending and also personnel expense savings. This year, we will continue to refine our operations aiming to enhance the efficiency of sales and management expenses while meeting the business needs and products innovation with an interest emphasized on driving profitability. So as a result, we anticipate a gradual recovery in our overall profit margin in 2024.
We will now take questions from CICC.
[Interpreted] So my first question is that, our RCN function has been released for about -- around half a year. And do we -- could you give us some more color on the future potential scale and the monetization method in the future?
[Interpreted] So we started RCN from 2 years ago, and aiming to integrate the full scattered headhunting industry. So like we just mentioned, we think there's opportunity to integrate the scattered headhunting industry through a cooperating network to improve the efficiency of the headhunting firms. So this is the mindset why we created this product at first time. So like mentioned, we've launched this product in September last year. So as of December 31, 2023, there are around 60 headhunting firms has been deeply cooperated with us. So in terms of cooperation model and also the feedback we receive from this product, this product is very well received by the headhunting firms. And the cash billing from this product will exceed $100 million in 2023. And this year, it is expected to grow by 1 to 2x. So, we could say that we are having a successful exploration in terms of our RCN products. So going forward, we will continue to explore further and see if we have better ways to generate further growth.This year, we will explore Duolie RCN in terms of AI and making it having more aggressive progress. So we see the headhunting firms, their pressure in terms of internal management and expense control is great as well. So with the AI empowerment, they can improve their internal efficiency and lower their reliance on their staff. So combining with the cooperation network with the RCN, so from -- so far, we've seen that the process of headhunting firms also welcome and embrace this trend, this model. And for us, Liepin, we've always done a lot of innovations in headhunting industry and we have always empowered the headhunting firms. So we do believe that RCN will be a very good tool to -- also very good SaaS that's driven by AI in the Chinese headhunting industry. So we will keep exploring in this field and we will keep you updated if we have more exciting news.
Okay. So in the interest of time, this concludes our conference today. And if you have further questions, please do not hesitate to contact our IR team through e-mail, ir.liepin.com. And thank you all for your time today. See you next quarter.
This concludes today's call. Thank you for your participation. You may now disconnect.[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]