Guotai Junan Securities: The recovery momentum of human resources service operations is accumulating, and AI breaks the deadlock for leading companies to be revalued

According to the Zhitong Finance APP, Guosen Securities released a research report stating that the human resources service industry is a barometer of the national economy. Over the past two years, the leading companies in this sector have faced varying degrees of revenue growth pressure due to external operating environment impacts. Additionally, except for the online recruitment sub-sector, the industry is labor-intensive, leading to further declines in profit margins under revenue pressure. Consequently, the stock prices of leading companies in the sector have also faced downward pressure, with valuation levels adjusting to historically low areas. Looking ahead to 2025, "increased penetration of flexible employment + AI empowerment for efficiency + cyclical elasticity" has become a focal point for the human resources service industry.

In terms of targets, considering the business structure of leading companies and the current valuation levels, key recommendations include Career International (300662.SZ), Beijing Renli (600861.SH), TONGDAO LIEPIN (06100), and BOSS ZHIPIN (BZ.US), with a suggestion to also pay attention to Foreign Service Holdings (600662.SH).

Guosen Securities' main viewpoints are as follows:

The blue ocean market has vast space, and the concentration of leading players is steadily increasing

The "2024 China Human Resources Service Industry Research Report" indicates that the domestic human resources market size was approximately 27.6 trillion yuan in 2023, and it is expected to grow to 50.3 trillion yuan by 2028, with a CAGR (2023-2028) of about 12.7%, showing robust industry growth momentum. In 2023, the CR3/CR5 of domestic human resources institutions was 20.7%/21.3%, compared to 19.4%/19.0% in the same period of 2019, indicating a steady increase in concentration. The current top five players in the human resources industry (by revenue size) are Beijing Renli, Foreign Service Holdings, Zhongzhi Group, Career International, and BOSS ZHIPIN.

Sector competition: Outsourcing has the highest prosperity, while recruitment is gradually recovering from macro disturbances

The human resources industry can be divided into three core segments: recruitment services (headhunting/online recruitment/recruitment process outsourcing, etc.), outsourcing services (business outsourcing/HR affairs outsourcing, etc.), and software and consulting training (software/management training/talent assessment, etc.). According to Sullivan data, in 2023, the domestic recruitment service market size was 3.6 trillion yuan, accounting for 13.1% of the market, with a CAGR (2023-2028) of about 10.2%; in 2023, the outsourcing service market size was 21.3 trillion yuan, accounting for approximately 77.0%, with a CAGR (2023-2028) of about 13.9%; during the same period, the software and other services market size was 2.7 trillion yuan, accounting for 9.9%, with a CAGR (2023-2028) of about 5.8%.

Overall, the outsourcing business has the highest prosperity, while recruitment services are gradually recovering from macro disturbances

Growth highlights: 1) Highlight 1: Improved compliance in employment for emerging industries contributes to new growth in outsourcing. The outsourcing business has a moderately counter-cyclical attribute, historically relying on its characteristics of "risk transfer and cost reduction" to continuously increase penetration in traditional manufacturing, commercial services, and the internet sectors. Currently, there are over 84 million workers in emerging industries, including delivery personnel and ride-hailing drivers. As compliance in employment in this sector improves, leading companies in human resources services will benefit from outsourcing business 2) Highlight 2: The recruitment business has strong cyclical attributes. The prosperity of the recruitment business generally lags behind the economic cycle by 1-2 quarters. The 2025 government work report mentions a GDP growth target of around 5% and over 12 million new urban jobs. Against the backdrop of economic stabilization, the recruitment business is expected to demonstrate operational resilience.

1. Highlight 3: AI enhances matching efficiency and reduces costs while increasing efficiency. In the past, recruitment demand in human resources services was difficult to standardize due to the diversity of "position" requirements, making it labor-intensive with weak economies of scale. With the empowerment of AI technology, internal matching efficiency and accuracy will improve, and the economies of scale will enhance, leading to expected reductions in costs and increases in efficiency.

Risk Warning:

Macroeconomic pressure, intensified industry competition, loss of major clients, and risks associated with the commercialization of AI