Monday, May 9, 2011

51Job (JOBS) - A Way to Play the Chinese Employment Market

Introducing a new China centric name to the website today, that I have been following for a few quarters - 51Job (JOBS).

51job, Inc. is a leading provider of integrated human resource services in China with a strong focus on recruitment related services.  Through online recruitment services at and print advertisements in 51job Weekly, 51job enables enterprises to attract, identify and recruit employees and connects millions of job seekers with employment opportunities.  51job also provides a number of other value-added human resource services, including business process outsourcing, training, executive search and compensation and benefits analysis.  51job has a call center in Wuhan and a nationwide sales office network spanning 25 cities across China.

The company reported earnings Friday, and experienced a serious gap up, on a massive volume surge.... but could not quite take out early April highs.  I thought the results were very solid .... but the upside reaction of that magnitude took me by surprise.  There are quite a few companies in China growing at a faster rate, but this is a 'scarcity' play in that there are not many pure play ways to play China employment in the equity markets.

Some positives - online recruitment outperformed the rest of the business substantially, and now is over half the revenue stream.  Gross margins expanded substantially.   The negative remains valuation - JOBS trades at 35xish forward estimates.

Via the earnings report.

  • Total revenues increased 27.6% over Q1 2010 to RMB324.5 million (US$49.6 million), exceeding the Company's guidance range of RMB305 million to RMB315 million. 
  • Online recruitment services revenues increased 57.5% over Q1 2010 to RMB172.8 million (US$26.4 million)
  • Gross margin expanded to 70.5% compared with 64.3% in Q1 2010"Through operational discipline and improved efficiency, we also successfully drove margin expansion despite higher employee costs and investments for the long term. " 
  • Fully diluted earnings per common share were RMB1.55 (US$0.47 per ADS).  Excluding share-based compensation expense and foreign currency translation loss as well as their related tax impact, non-GAAP adjusted fully diluted earnings per common share were RMB1.71 (US$0.52 per ADS), exceeding the Company's guidance range of RMB1.20 to RMB1.30 

More on the online business
  • The increase primarily resulted from a greater number of unique employers using the Company's online recruitment services as well as higher average revenue per unique employer.  
  • Unique employers increased 37.9% to 154,823 in the first quarter of 2011 compared with 112,245 in the same quarter of the prior year driven by greater customer acceptance and usage of online recruitment services.  
  • Average revenue per unique employer increased 14.2% in the first quarter of 2011 as compared to the same quarter in 2010 due to stronger market demand and increased spending on online services by employers. 

The company raised guidance over where the analyst community is....
  • For the second quarter of 2011, based on current market and operating conditions, the Company's revenue target is in the estimated range of RMB325 million to RMB335 million (US$49.6 million to US$51.2 million).  
  • Excluding share-based compensation expense and any foreign currency translation loss or gain as well as their related tax impact, the Company's non-GAAP fully diluted earnings target for the second quarter of 2011 is in the estimated range of RMB1.60 to RMB1.70 per common share (US$0.49 to US$0.52 per ADS).  The Company expects aggregate share-based compensation expense to increase in the second quarter of 2011 to approximately RMB10 million (US$1.5 million).

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