51job: Seeing Limited Downside Ahead of Earnings

51job (JOBS) is scheduled to report third quarter 2008 results before the market opens on Friday, November 14. Based on our analysis, we at eChristianInvesting are expecting JOBS to report disappointing results that fail to meet Wall Street’s consensus expectations.

Analyst Expectations

We are forecasting revenues of $30.0 million and EPS of $.10. This would represent a 2% increase in revenues from last year’s $29.4 million in the same period. The current analyst consensus calls for revenues of $30.7 million and $.11 EPS. On August 6, the company provided third quarter guidance for revenues of $29.9 – 31.3 million and $.11 - .14 EPS. The Chinese economy is certainly feeling the effects of the global recession, although how much of an impact it will have remains to be seen. Slowing GDP growth has already had an impact on 51job’s business and we expect a disappointing quarter based on the following assumptions:

1. The Beijing Olympic Games had a negative impact on the recruitment behavior of hiring companies in China.
2. Monster (MNST) commented on its quarterly call that the Chinese market and their China HR business were now feeling the effects of the global slowdown.
3. Traffic and job posting performance declined as public interest in the Olympic Games reduced job search.

Share Performance

To date, 51job’s shares have fallen 64%. By comparison, the Dow Jones Industrial Average has fallen 37% this year, and the Standard & Poor's 500 Stock Index is down 42%.

Valuation

Shares are now trading at 11x consensus 2009 EPS estimates. This is in-line with the relative valuations of their peer group. 51job is currently trading at the bottom of its 52-week range and at a relatively low valuation multiple. In addition, the company has over $5 per share in cash on its balance sheet with no debt. So while the macroeconomic pressures will continue to weigh on the company, we see limited downside provided the environment doesn’t deteriorate to the level where the company starts losing money.

Recommendation: Hold with a $7 price target.

Disclosure: none