BEIJING URBAN-RURAL COMMERCIAL(600861)：WITH PROPOSED INJECTION OF HIGH-QUALITY ASSETS FROM FESCO THE INDUSTRY LEADER SEES NEW DEVELOPMENT OPPORTUNITIES

China's leading HR service company plans to inject its assets to Beijing Urban-Rural Commercial (BURC) Listing Platform. BURC announced in July 2022 that it intends to replace its current business by acquiring Beijing Foreign Enterprise Human Resources Service Co., Ltd. (FESCO). BURC was established in 1992, and its main business includes commercial, tourism services, cultural and creative industries, and property management. FESCO is the first company in China to engage in human resource services, with more than 40 years of experience in the industry. The number of its client companies has exceeded 10,000, covering numerous fields including the Internet, finance, and medicine. In 2021, FESCO achieved revenue/net profit of RMB25.4/0.615bn, +40.45%/+7% YoY.
We see broad prospects for business outsourcing, with accelerating prosperity in post- epidemic recovery. Compared with mature developed countries such as Europe and the United States, China's human resource service industry still has considerable development space, especially in the broad field of business outsourcing. According to data from the Ministry of Human Resources and Social Security, the scale of the human resource service industry in 2021 reached RMB2.5tn, +23% YoY. However, according to CIC data, the penetration rate of flexible employment in China's human resource services is less than 1%, which is still far behind developed countries like Europe and the United States. Outsourcing non-core business is a strategic choice that companies will inevitably choose in the growth cycle. With the development of China's market economy, the demand for business outsourcing can also be very strong. In the post-epidemic recovery, companies are likely to return to the expansion cycle, accelerating the prosperity of the industry.
Industry leader with obvious scale and customer advantages: FESCO is the largest human resource service company in China, with meaningful first-mover advantages, a mature product service matrix, and an efficient and orderly working mechanism. It has established a service network in more than 400 cities across the country, with a wide range of customers and rich customer resources under the endorsement of state-owned enterprises. Its top five customers are leading enterprises in the information technology, Internet, logistics, and retail industries, and its largest customer Huawei accounted for 20.2% of its revenue in 2021. With the high prosperity of downstream industries and a large demand for labor, we expect the company to fully leverage its industry leadership role and enjoy the benefit of industry growth after listing.
Earnings Forecast & Rating: We expect that if the deal is completed in 2023, BURC's net profit in 2023-2024 is likely to reach Rmb0.81/0.94bn, respectively. The current market value of BURC is Rmb8bn, and we initiate with Buy rating.
Risks: Failure of M&A, macroeconomic fluctuations, economic downturns, intensified competition in the human resources industry.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。