China’s Monster of a Job Site

06/01/2011 9:00 am EST

Focus: GLOBAL

Robert Hsu

Editor, China Strategy and Asia Edge

Fears of competition from top portal Baidu have created an opportunity in the stock of China’s leading job recruiter, writes Robert Hsu, editor of China Strategy.

51Job (JOBS) is an integrated human-resources service provider in China, similar to Monster Worldwide (MWW) in the US.

51Job allows companies to attract, identify, and recruit employees—and connects millions of job seekers with employment opportunities throughout China. The company also provides human-resources services such as business outsourcing, training, executive search, and compensation and benefits analysis.

Basically, 51Job is a "one-stop shop" for employers' human-resources needs.

In the past a few months, the stock's chart became bumpy, largely due to mounting competition after Baidu.com (BIDU) entered the online job-recruiting space in China.

Investors sold off JOBS shares right after the news, because they thought that Baidu, as the most visited site in China, would be able to beat the current three major players at their own game to take over the title of the largest online HR platform in China.

However, after thorough research, I believe 51Job should still enjoy a strong competitive edge in China’s online recruiting market, because of its diversified business model, leading resume database, and proven experience.

Let's take a closer look...

The 51Job diversified business model differentiates it from major rivals Zhaopin and ChinaHR, and new market entrants such as Baidu, by focusing on three distinct sources of revenue.

The company derives about 55% of sales from online recruitment services, with the remainder split between its print advertising and human-resources services business lines. Its rivals largely rely on revenue from online recruiting.

Print advertising helps 51Job reach the many local employers who do not have an Internet presence and who focus only on local hiring. And the company is able to lead in the human-resources outsourcing sector in China, for which neither its rivals nor Baidu have expertise.

The company's extensive resume database is another strength. In the past five years, the number of resumes in the 51Job database has grown from 11 million to 36 million. Registered user accounts have soared to 45 million—accounting for nearly a tenth of China's Internet users.

New entrant Baidu currently has fewer than 10,000 resumes, according to third-party research reports. In addition, Baidu's job recruiting site Rencai is only one of the many new business initiatives Baidu took in recent years. It is difficult to know whether Baidu will commit lots of capital and labor to grow the business.

I believe the fear of Baidu's entry into the sector is overblown, and the news has actually given us a chance to get into JOBS at a better price.

The company certainly hasn't rested on its laurels. 51Job expanded to seven new cities in January and another 13 cities in April. As of now, its online platform covers 56 cities.

The company has seen a huge expansion in its average price per page for print advertising, up 31% on the rising page-volume contribution of high-priced cities. The company raised its rates in selected cities on April 1, and the price should increase by mid-to-high single-digit percentage points per customer by the end of 2011. Management will gradually realize the higher rates as customers renew their contracts.

As for its latest financials, 51Job delivered strong first-quarter results, with revenue growing 27.6% and net income up 78% from first quarter of 2010. Earnings per share came in at 47 cents, blowing away analyst consensus of 40 cents per share.

Gross margins and operating margins expanded by 5% and 8, respectively, and I believe that this is just the beginning if you factor in the upcoming rate hikes.

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