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51job, Inc. (NASDAQ:JOBS)

Q4 2011 Earnings Call

February 23, 2012 8:00 p.m. EST

Executives

Linda Chien – Head of IR

Rick Yan – President and CEO

Kathleen Chien – COO and Acting CFO

Analysts

Philip Wan – Morgan Stanley

Tim McHugh – William Blair & Co.

Wendy Huang – Royal Bank of Scotland

Alicia Yap – Barclays Capital

Ming Zhao – SIG

Dick Wei – JP Morgan

Andy Zhao – Bank of America-Merrill Lynch

Operator

Good morning and good afternoon, ladies and gentlemen. Thank you for holding. Welcome to the 51job, Inc. fourth quarter and fiscal year 2011 conference call. (Operator Instructions).

I would now hand the conference over to Ms. Linda Chien, Head of the Investor Relations. Thank you, madam. Please go ahead.

Linda Chien

Thank you, [Ming], and thank you all for attending this teleconference to discuss unaudited financial results for the fourth quarter and fiscal year ended December 31, 2011.

With me for today’s call are Rick Yan, President and Chief Executive Officer, and Kathleen Chien, Chief Operating Officer and Acting Chief Financial Officer.

A press release containing fourth quarter and full-year 2011 results was issued earlier today and a copy may be obtained throughout our website at ir.51job.com.

Before we begin, I would like to remind you that during this call statements regarding targets for the first quarter of 2012, future business and operating results constitute forward-looking statements within the meaning of Section 21-E of the Securities Exchange Act of 1934 as amended and as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon management’s current expectations and actual results could differ materially.

Among the factors that could cause actual results to differ are the number of recruitment advertisements placed; sales orders received and customer contracts executed during the remaining weeks of the first quarter of 2012; any accounting adjustments that may occur during the quarterly close; fluctuations in the value of the renminbi against the US dollar and other currencies, behavioral and operational changes of customers in meeting their human resource needs as they respond to evolving social, economic and political changes in China as well as stock market volatilities; introduction by competitors of new or enhanced products or services; price competition in the market for the various human resource services that the company provides in China; acceptance of new products and services developed or introduced by the company outside of the human resources industry and fluctuations in general economic conditions.

For additional information on these and other factors that may affect the company’s financial results, please refer to the Risk Factors section of the company’s filings with the Securities and Exchange Commission. 51job undertakes no obligation to update targets prior to announcing final results for the first quarter of 2012 or as a result of new information, future events or otherwise.

Now I’ll turn the call over to Rick.

Rick Yan

Thank you, Linda, and welcome to today’s call. I will begin with highlights of the fourth quarter and full-year 2011, followed by Kathleen with a more detailed review of our financial results. Then I would discuss current market conditions and our guidance. Afterwards, we’ll open the call to your questions.

Our fourth quarter results capped off a solid year of revenue and profit growth. Total revenues for the quarter were RMB370 million or approximately $59 million, a 23% increase over the year-ago quarter. Our non-GAAP diluted EPS came in at RMB2.14 or $0.68 per ADS.

Looking at each business area, our online revenue grew 39% year over year in the fourth quarter. As expected and forecasted into our guidance, we experienced some seasonal slowdown in recruitment activity at yearend, in line with historical patterns. In general, we observed that market demand and employment behavior for the full-year 2011 was largely similar to pre-financial crisis trends, a return to normalcy after two recovery years.

The bulk of new customers were weighted towards the first half of the year. As budgets were depleted by December, many HR managers looked forward to resuming their hiring post Chinese New Year.

Although the number of unique employers using online services increased 11% year over year, this figure decreased sequentially from the third to the fourth quarter like in many past years. As a result, revenue growth in the fourth quarter was primarily driven by 25% increase in average revenue per customer, which reflected the new rates introduced in April 2011 as well as competition for quality talent that drove employers to purchase more online services.

We also continued to see large employers with formalized annual recruitment plans remained aggressive spenders, while our smaller corporate customers were less active amid low seasonal demand and the overhang of economic uncertainty.

In our Other HR Services area, we had another standout quarter with revenues growing 33%. We saw a strong demand for our seasonal campus recruitment services, which demonstrated the increasing investment in human capital by large corporate, in particular to acquire the necessary talents to drive their companies forward. We also remained very pleased with the development of our outsourcing and training businesses as we expand our service footprint to more enterprises across China.

Because our recruitment services will always be susceptible to the ups and downs of the economic cycle, we believe our growing diversification into Other HR Services is therefore more important and prudent for our longer-term development. Other HR Services contributed more than one-third of revenues in the fourth quarter, and we believe we have tremendous opportunities to cross-sell our outsourcing, training and other services into our recruitment customer base.

Needless to say, the wind-down of our Print operations was very apparent in our fourth quarter results. Our proactive effort to redirect our energies and resources towards other growth areas combined with seasonal Print weakness led to the significant decline in Print revenues. The transition away from Print on the Print business is largely behind us as the trajectory of this business [passed] below 10% of total revenues. The Print business played an important role in 51job’s history over the last decade, but as we move forward, this transformation positions us even stronger for the next phase of our development.

Turning to our full-year 2011 results, we are very pleased to deliver record revenues, margins and profits to our shareholders. Revenues grew 26% to RMB1.37 billion or $218 million. Capitalizing on scale economies while absorbing higher costs related to employee compensation, end-sales and marketing activities, we efficiently improved gross margin to over 71% and operating margin to nearly 34% in 2011. We achieved our ninth consecutive year of profitability, generating net income of RMB386 million or approximately $61 million.

From inception, our guiding strategic principle has been clear, to constantly listen to our customers and users and to evolve our service offerings to provide the most effective and best-in-class solutions to meet their needs. We believe this will continue to enable us to be the leading innovator and realize the greatest opportunity in the HR industry in China.

I will now turn the call over to Kathleen for a detailed financial review.

Kathleen Chien

Thank you, Rick.

Revenues for the fourth quarter totaled RMB370 million, at the top end of our forecasted range and represented a 23% increase over the same quarter in 2010. Online revenues for the quarter were RMB217 million, an increase of 39% compared to the same quarter in 2010. We saw a 25% increase in average revenue per online customer compared to the year-ago quarter due to greater customer spending and the impact of the new price list which was implemented last April.

The number of unique employers using our online services increased 11% year over year to 155,000 companies due to the customer acquisitions and growing adoption of our online services. In line with our traditional seasonal pattern, the number of unique employers decreased sequentially from the third quarter as recruitment activities froze at yearend.

Print advertising revenues decreased 47% to RMB27 million compared with the fourth quarter of 2010. The decline was primarily due to the [Infosys] and discontinuation of Print operations in certain cities over the last 12 months and the resulting decrease in advertising pages. In addition, we also saw traditionally weak seasonal demand at yearend.

Print advertising pages in the fourth quarter of 2011 decreased 50% to 850 pages compared with about 1,700 pages in the prior year’s quarter. Average revenue per page increased approximately 6% due to greater contribution from the higher price cities.

We will continue to manage down our Print operations and reduce the number of acquisition in 2012. Although we’re expecting modest sequential rebound in Print revenues in the first quarter due to seasonal demand in the post Chinese New Year period, we do expect that the contribution from Print revenues to total revenues would decrease very meaningfully compared to the year-ago quarter, down to less than 15% of our total revenues.

Other HR Services grew 33% to RMB126 million in the fourth quarter of 2011 due to increased demand and customer acceptance of our outsourcing, campus recruitment and training services. Total revenue contribution from Other HR Services increased to 34% in the fourth quarter. Gross profit grew 34% to RMB251 million and gross margins increased to 71.2%, approximately 580 basis points higher than the fourth quarter of 2010. The margin expansion was primarily due to economies of scale, operating efficiency and a reduction in Print-related expenses. Included in cost of services in the fourth quarter was share-based compensation expense of RMB1.8 million.

Sales and marketing expenses increased approximately 16% year over year to RMB98 million in the fourth quarter of 2011, mainly due to higher employee compensation expenses, headcount acquisitions and greater advertising expenditures. Included in sales and marketing expenses were share-based compensation expense of RMB1.5 million in the fourth quarter.

G&A expenses for the fourth quarter was RMB41 million, an increase of 66% from the year-ago quarter due to higher employee compensation, rental and office expenses. However, on a sequential basis compared to the third quarter of 2011, G&A expenses for the fourth quarter of 2011 was actually down slightly. Share-based compensation expenses included in G&A increased to RMB7.7 million in the fourth quarter of 2011 compared with RMB2.9 million in the same quarter of the prior year. The fourth quarter of 2010 actually included a [catch-up] for stock option forfeitures which meaningfully decreased expenses in that quarter.

Operating income for the fourth quarter of 2011 increased 44% year over year to RMB112 million. Our operating margin improved to 32% compared with 27% in the same quarter of the prior year. Excluding share-based compensation expense, our operating margin reached nearly 37% in the fourth quarter.

Other income in the fourth quarter included a financial subsidy in the amount of RMB5.5 million. Our effective tax rate decreased to 11.3% due to adjustments to our overall income tax expense for the full year of 2011 which were captured in the fourth quarter. Adjustments included a true-up of income tax provisions for the first three quarters to actual tax rate due as well as tax credits received for certain expenses.

This year, our main PRC operating entity, Tech JV, will be subject to inspection to renew its status as a high-end new technology enterprise, the qualification of which will lower the entity’s tax rate from the statutory 25% to the preferential 15%. We will not be officially notified of the requalification of another three-year term status until late in the year.

However, as we believe that we should be able to maintain this preferential tax status, we believe that our overall effective tax rate for 2012 should be similar or slightly lower than a 17% rate that we saw in 2011. But should the preferential tax status not be renewed, Tech JV’s tax rate would increase from the 15% preferential to the 25% statutory rate, and significantly add additional tax expenses at yearend.

Net income for the fourth quarter increased 70% to RMB114 million compared with RMB67 million in the same quarter of 2010. Fully diluted earnings were RMB1.93 per common share, which is equivalent to $0.61 per ADS. Excluding share-based compensation expense, loss from foreign currency translation and the related tax impact, our non-GAAP adjusted net income increased 68% year over year to RMB126 million in the fourth quarter. Non-GAAP adjusted fully diluted earnings per common share were RMB2.14 or $0.68 per ADS.

For the full-year 2011, total revenues increased 26% to RMB1.37 billion. Compared to the prior year, online revenues increased 48%, Other HR Services revenues grew 33%, and Print revenues decreased 25%. Gross margin in 2011 increased 500 basis points to 71.5%, driven primarily by economies of scale and greater efficiencies.

Income from operations increased 62% to RMB442 million and net income increased 65% to RMB386 million in 2011. Excluding share-based compensation expense, loss from foreign currency translations, loss from impairment of long-term investments and their related tax impact, non-GAAP adjusted income increased 69% to RMB449 million in 2011. Non-GAAP adjusted earnings per common share for 2011 was RMB7.6 or $2.41 per ADS.

And looking at our balance sheet, we’ve maintained a very strong financial position with cash and short-term investments increasing to over RMB2 billion or approximately $326 million. This is equivalent to over $11 per ADS.

In the fourth quarter, we also made installment payments totaling about RMB42 million for the purchase of the new office building in Wuhan.

Now I’ll turn the call back over to Rick.

Rick Yan

Thank you. Based on the limited data we have gathered thus far from the post Chinese New Year recruitment period, we are relatively optimistic about the market demand in 2012. Although not matching the strength of the last two years, we also do not believe there are signs that indicate a repeat of the extreme conditions seen during the financial crisis.

On the salary front, our compensations with enterprises point to another year of high wage inflation for white-collar workers. According to our surveys, companies are expecting to raise wages in the high single digit percent, on par with last year’s increase. From what we have seen these past few weeks, our initial assessment for 2012 is a year of modest growth as we expect companies of large stature and budgets to continue hire aggressively while SMEs remain more cautious on a need-to-hire basis.

However the Chinese economy and market demand plays out this year, we are moving forward, focused on executing our strategic objectives. On the online front, we are piloting some social features and recently upgraded the Fan Club function which allows users to post, follow and share information on their chosen companies. We have also introduced a Micro Resume function where jobseekers can submit a condensed version of their CV through their mobile phones. For headcount managers, we have improved the applicant tracking and management function in eHire. We have plans to launch more features to enhance the experience of our users throughout the year.

Another major priority in 2012 is customer acquisition. After two strong years, we saw a moderation in the growth rate of unique employers using our online services in 2011 due to greater turnover [amount] SMEs, especially in the latter part of the year. While online revenue remained robust as ARPU increased, we need to continue our efforts to broaden our customer base and create future cross-selling opportunities to headcount additions coupled with marketing activities.

In tandem with customer acquisition, we’re expanding our city coverage which will be bolstered by the new Wuhan building to house more sales and service staff. It would take some time to seed and cultivate these new cities as they are less developed and sophisticated than the larger cities where we have long operating history. But we are encouraged by our progress and saw a solid pickup in customer activity at the call center in the post Chinese New Year period.

Turning now to our guidance, based on current market conditions, our total revenue target for the first quarter of 2012 is in the estimated range of RMB375 million to RMB390 million. Please be aware that this revenue guidance factors in a significant year-over-year decline in Print revenues as we manage down these operations. We expect that the contribution of Print revenues to total revenues will fall below 15% in the first quarter of 2012 compared with 27% in the prior year’s quarter.

For non-GAAP fully diluted EPS target, our estimated range is between RMB2.05 and RMB2.2 per common share. Please note that this non-GAAP EPS range does not include share-based compensation expense, foreign currency translation loss, nor their related tax impact. This guidance reflects our current forecast which is subject to change.

Since 2008, we have navigated our business through bright and gloomy economic outlook, peaks and valleys in hiring demand, positive and negative market expectations. As we enter into another period of uncertainty, we feel very well-prepared, positioned and experienced to tackle any challenges that lie ahead. We will continue to balance financial discipline and investments for our long-term growth with the ultimate goal of creating a stronger integrated HR services platform in China, and delivering the greatest return to our shareholders.

That concludes our presentation. We’ll be happy to take your questions at this time. Operator?

Question-and-Answer Session

Operator

Thank you, Mr. Yan. (Operator Instructions).

Your first question comes from Mr. Philip Wan from Morgan Stanley Company. Thank you. Please go ahead with your question.

Philip Wan – Morgan Stanley

Hey. Good morning, Rick, Kathleen and Linda. Thanks for taking my question.

First of all, could you share with us your latest network coverage in terms of how many cities are supported by your Wuhan center and then how many cities you have with the Print business? And then I have a follow-up.

Kathleen Chien

Sorry, Philip, I couldn’t hear your question. Do you mind repeating again? You were breaking up a little bit.

Philip Wan – Morgan Stanley

Sorry. Okay. First of all, could you share with us your latest network coverage by the end of 2012, in terms of cities covered by the Wuhan center as well as your offline Print coverage? Thank you.

Kathleen Chien

I think our expectation is that by the end of the year, I mean we expect to be covering about 100 cities total, including all of the cities where we have geographic offices in. So that would be [an addition of about] 20-plus cities in terms of what we expect to reach out to during the course of the year.

In terms of the Print operations, we do expect to continue to manage down the portfolio of cities that we are in. So we do expect that there will be additional decisions on cities over the course of this year, so perhaps on a similar pace as how we looked at it last year. But the timing and decisions have not been made but we do see that there will be decisions taken this year.

Philip Wan – Morgan Stanley

Thank you. And then next my question is about your recruiting demand again. Have you seen a significant pickup after Chinese New Year, or in other words, how does the recent trend compare to your previous expectations? And then somewhat related to that, any plan to raise your price again for this year?

Kathleen Chien

I think we do believe that the activity has been strong post the Chinese New Year period as before, although we’ve said earlier that, compared to perhaps the phenomenal growth that we saw in terms of the demand environment in the last couple of years, from the recovery year from the financial crisis, perhaps not as strong as that. However, I think it’s very solid. We continue to see that companies are very active in recruiting. So I think these are still very positive and encouraging signs for the market demand overall.

In terms of the pricing question, I think we will be reviewing that question in the second quarter as we did last year. We will not be making any decisions in the first quarter at this point in time. We have now about three weeks of data post Chinese New Year. We expect to continue to monitor the situation very closely, but I think that at this point in time we would probably be disinclined to think of it as a broad-based across-the-board price increases, but there will be selective opportunities and I think we’ll be looking at instead.

Philip Wan – Morgan Stanley

Thank you. And lastly for me, could you share with us any plan for cost control measure if indeed we experience another significant slowdown in recruiting demand as we have seen back in the previous financial crisis?

Kathleen Chien

Our view is that we don’t believe that we’re in a financial crisis type of a situation at all at this point in time. So I don’t expect that we’ll be taking any sort of extreme measures. Having said that, I think 501job has always been a very cost-conscious and very efficient in terms of how we look at and manage our business. So I think that certainly if it came to a situation where the market environment turned into a financial crisis kind of a mode, which is actually relatively extreme in our opinion, I think that certainly we’ll be very cautious in terms of our own hiring and recruiting plans as well as anybody else in the market.

So I think -- but I think that chance is very remote at this point in time, is what our view of the situation. But we’ll be very disciplined as always, so I don’t think that should change how we look at and manage our business.

Rick Yan

And we are committed to invest for the long-term growth of the market, as you can see. Even during the 2009 financial crisis, we didn’t have any layoff and we were adding the call center. We made the decision to build a call center in the middle of 2009. So I think in addition to being efficient, which is a long-term goal for the company, will be continue to invest in the long-term development of the Chinese market.

Philip Wan – Morgan Stanley

Thank you. That’s very helpful.

Linda Chien

Thank you.

Operator

Thank you. The next question comes from Mr. Tim McHugh from the company of William Blair. Thank you. Please go ahead with your question.

Tim McHugh – William Blair & Co.

Yes. Thanks, guys. First I want to ask, I know it’s only been three weeks, but as you’ve come out of the Chinese New Year, does it continue to be similar to what you saw in the fourth quarter in the sense that it’s the revenue per customer that continues to drive the growth? Or have you seen any improvement in the number of customers, I guess? And I guess specifically, the small and medium-size businesses coming back to use your service?

Kathleen Chien

I think there is obviously a difference in seasonality, so I think post Chinese New Year we do expect that there is actually just more active customers overall because that is typically the seasonal pattern, if you will. We continue to believe that if people are more worried about an overhang in the economy, probably the small, medium-size enterprises will have a more -- be more impacted, if you will, than otherwise, and the larger companies will have the resources to invest and plan for the longer term. I think that’s generally true.

But again I think seasonality is different, so I think first quarter we always see that there is actually a very solid pickup in demand after Chinese New Year. We continue to see that that is the case. We don’t think that perhaps that it will be as phenomenal as it was in the prior year, but I think that we still feel confident that there is a lot of activity going on, it’s very dynamic still.

Operator

Thank you. The next question comes from Ms. Wendy Huang from the company of Royal Back of Scotland. Thank you. Please go ahead with your question.

Wendy Huang – Royal Bank of Scotland

Good morning, Rick, Kathleen and Linda. Congratulations on the great results.

My first question is, your revenue per online customer’s record historical high at close to RMB1,400 based on my calculation. So what will be the trend going forward?

Kathleen Chien

I think, Wendy, we believe that in the first quarter typically, that it will probably not have too much change. There will be some year-over-year increases certainly because last year we actually implemented the price increases in the second quarter. So when we look at year-over-year comparisons, when we look for the first quarter, we do expect that there’ll be year-over-year increases. But I think first quarter, as we said earlier, that there is actually more significant sort of pickup in activity versus the fourth quarter, so therefore we’re expecting that there will be more new customers coming into the fold. So, my expectation is that it will be similar levels perhaps as last year’s fourth quarter in terms of the first quarter, but what happens for the rest of the year will depend on what decision we take on pricing in the second quarter as this point as well.

So we’ll be updating people with more information as we make decisions for the fourth quarter on our pricing levels for this year, if you will. But I think at this point in time, I think this first quarter, I would imagine that it should be, you know, our expectation is that it is more in line with what the fourth quarter numbers look like.

Rick Yan

And Wendy, I might add one more point about the pattern that we observed in the previous years on the online business, is when we have a lot of new customers, they tend to buy the more basic low-price packages. And last -- the last fourth quarter because we didn’t grow the new customers that much, that’s why the more existing and kind of experienced users, and they tend to buy more -- the more higher-price services.

So, do keep that in mind, that the number of new customers might also have an impact on our revenue per online employer.

Wendy Huang – Royal Bank of Scotland

Okay. My second question is, your gross margin, operating margin, finally came down by a reasonable magnitude this quarter, as you promised. So, going forward, should we use the current level as long-term benchmark?

Kathleen Chien

I think, Wendy, we talked about -- hello?

Rick Yan

Hello?

Operator

Excuse my interruption. Please wait for a moment. Sorry. Excuse my interruption.

Sorry, Ms. Chien. I'm the host moderator. Please go ahead with your conference. Sorry. Thank you.

Wendy Huang – Royal Bank of Scotland

Hello, Kathleen? Hello?

Kathleen Chien

Hello?

Wendy Huang – Royal Bank of Scotland

Hello, Kathleen, can you hear me?

Kathleen Chien

I'm sorry. Yeah. There was a sort of disruption. I'm sorry, could you actually repeat the question, Wendy? I couldn’t hear it.

Wendy Huang – Royal Bank of Scotland

Yeah. My question is about margin trend. So, after several quarters, continuing margin reduction, so I think finally this quarter we are seeing a more visible margin normalization. So, should we expect the current gross margin and operating margin to sustain into the long term?

Kathleen Chien

I think, again, when we look at the year-over-year comparison in the fourth quarter, we actually made significant strides, although on a sequential quarter basis that it was down, as we expected, because of seasonality spending patterns, if you will. As we mentioned before, we still believe that there is some expansion opportunity for us on the margin side, so we hope that we will be able to demonstrate that over the course of the year for people to see. But we do think that it is important to also always look at seasonality patterns and then make comparisons accordingly. So I think that -- we still believe that the scale business is something that we continue to believe in for us. And that as we continue to gain in revenue scale, that there’s more opportunities for us.

Wendy Huang – Royal Bank of Scotland

Okay. And also for your tax rate guidance, you said we should use 17% for now, assuming that you get a preferential tax status. Should we -- but among the quarters, were the tax expense front-loaded as what we saw in 2011?

Kathleen Chien

This year we hope that it will be more moderate in terms of being more stable over the course of the year. Sometimes that there are some exemptions or credits and some things that we get at yearend which makes the fourth quarter typically a little bit different from the prior quarters. But barring from that, I mean we would expect that it should be similar and constant throughout the different quarters of the year.

Wendy Huang – Royal Bank of Scotland

Okay. My final question is a general question on your HR outsourcing business. So, with the opening up of HR outsourcing market in China, how has the competitive landscape changed over the past two years? And also, has there any other non-state-owned companies or non-government-related agency emerged in your space, I mean other than 51job?

Kathleen Chien

I think the market continues to evolve very rapidly in this space because, as you say, as the regulatory environment changes, as the way people serve customers, as labor regulation changes, there’s always new opportunities and new ways to serve customers. So I think that that would be something that we continue to expect in the coming years.

In terms of competitive landscape, there are -- the sort of -- the incumbents or the leaders in the market are still the sort of traditional monopoly players, state or government-related entities, but there are other companies like ours who want to be able to play a bigger role as a private sector service provider out there. So there are a few out there. I don’t think that there are that many of large scale, but there are a few out there.

Wendy Huang – Royal Bank of Scotland

Okay. And also just to follow up on that, you mentioned about the new products for your recruitment services, and obviously eHire. So, how will you expand your HR outsourcing service offering in 2012?

Kathleen Chien

I think the HR outsourcing offerings, I mean it’s really for us always a combination of getting more companies to work with us, as well as buying more services in the basket of services that we can offer. We said before and it continues to be the case that, for example, benefits processing is the biggest part or the most popular service, if you will, in the area, but we are able to offer additional services be it payroll, some other management services or compliance filings and other type of offerings that we can do within the area.

But I think it is still led by benefits processing the biggest hurdle always is actually get more customers to use your services and be open to use these services for more of the employees within the company because I think for larger companies in China today, certainly when they actually decide on the outsourcing decision, they don’t make a one-off decision that affects every single person in the company. They actually do it a little bit more piecemeal, partial off different groups or different functions and whatnot.

So our hope is that because that we are able to offer a good value proposition and a high-quality service, that we’re able to obtain more and more of that business over time, as we get in deeper and deeper into each customer account. But bottom line is that we want to be able to cross-sell more services to our customers that are actually already with us on the recruiting side with these different buckets of services that we’re in, and we think that this is a very significant opportunity.

Wendy Huang – Royal Bank of Scotland

Okay. Thanks.

Linda Chien

Thank you.

Operator

Thank you. Our next question comes from Ms. Alicia Yap from the company of Barclays Capital. Thank you. Please go ahead with your question.

Alicia Yap – Barclays Capital

Hi, good morning, Rick, Kathleen and Linda. Thanks for taking my questions.

A couple of questions, first of all, regarding your first quarter guidance, so it looks like the guidance reflected the benefit that you enjoy as a result of the early Chinese New Year this year. So, should we then expect the sequential growth for the second quarter will be a little bit smaller than previous year?

Kathleen Chien

We haven’t gone to the second quarter yet, so I don’t know enough right now to actually comment too much on the second quarter. But I think that one of the things that we’ll be managing through and navigating through is the fact that Print contribution over time will become -- is becoming much, much smaller, and that typically has a big impact on the quarter-on-quarter performance in the first and second quarter, especially because of the seasonality. So this year we need to observe that a little bit more.

Obviously we’ve already said that Print contribution is expected to be no more than 15% of total revenues, and then similarly, we would expect that percentage should be even smaller in the second quarter if we follow our seasonality typically. So we’ll have to see.

But we’re confident in the growth of the other businesses, so we hope to be able to update you with more concrete, specific information when we finish the first quarter. But at this point all I can say that a lot of it will depend a little bit on the outlook for the Print product as we manage through this more tricky period as we kind of make [that a] much more part of our portfolio.

Alicia Yap – Barclays Capital

I see, I see. So, just to kind of quickly follow up on that, that means that [it’s lesser] going forward and if the Print is, you know, kind of like maintain at the 15% level, then the seasonality impact of fluctuation we see previously in the quarter-to-quarter basis will be less, right?

Kathleen Chien

Yes, I believe so. And I also believe that the contribution from Print in the second quarter will be even smaller than the 15% by a significant margin. Because again when you look at last year’s trend, those numbers actually come down quite a bit from the first to second quarter as it is.

Alicia Yap – Barclays Capital

I see. Okay. And the second question is, it seems that your pricing increase impact more or less already reflected on your margin’s increase, or you probably have one more quarter to go before the [2Q] price increase kicks in. So, will there be any, you know, should we expect these margins to be a little bit more stabilized? But then I think Rick mentioned on his comment that I think you expect to have a little bit more further customer acquisition costs and then addition for the sales and marketing initiatives? So, is there any indication for the margins?

Kathleen Chien

I think that what Rick was alluding to is just that fact that we continue to feel that customer acquisition and long-term sales and marketing investments are very important as we believe that there is more penetration in the market for us overall. I don’t believe that that’s a direct comment on margin trends, if you will.

I think that earlier we talked a little bit about what our views are on pricing is and I think we are actually trying to make decisions on that. So there might be system changes on the pricing side for the second quarter that we need to come back and update everyone on market with. But as I said earlier, we don’t think it’s going to be a broad-based across-the-board price increases, but we do believe that there are certain things that we could optimize and need to look at. So there are some selective opportunities there as well which will actually have an impact on pricing and margins.

Alicia Yap – Barclays Capital

I see, I see. And then lastly, just any change on the competitive landscape?

Kathleen Chien

I don’t think anything large, sort of meaningful change, certainly since the last quarter. I think that coming out of a strong year for ourselves, we believe that the market is really just -- the only competitor really that we have on the online side really is only Zhaopin. We don’t believe that China HR is actually in the same tier as ourselves anymore. I think that they’ve had a significant fallback in terms of their trends and their trajectory and their overall revenue levels, we believe are much smaller than everybody else’s now. I guess not everybody, just the two of us now, if you want, in the top-tier buckets. So, yeah, I would not say that anything has marginally -- meaningfully changed in the last quarter.

The key is always the first quarter in our mind every year. So we hope to be able to demonstrate good results this year. We are very confident in our team’s ability to execute and move forward. And hopefully have good updates for everybody in a few months’ time.

Alicia Yap – Barclays Capital

Great. Thank you.

Linda Chien

Thank you, Alicia. Good to hear from you again.

Operator

Thank you. And our next question comes from Ms. Ming Zhao from the company of SIG. Thank you. Please go ahead with your question.

Ming Zhao – SIG

Thank you for taking my questions. Good morning. First question is really on your comments about the post Chinese New Year behavior in the market. I think you mentioned the demand [from cities] is still robust but not as robust as what you see in the past. What is the major reason there? Have you seen any particular verticals having some weakness there? That’s my first question.

Kathleen Chien

Ming, we do not believe that is actually vertical driven sort of a difference, if you will. Obviously the guidance we gave also reflect the fact that, you know, our perception of the demand profile is not as robust as what we saw when we were coming out in the first quarter of 2011 or coming out of a recovery period in 2010, no more like that. Again, we have never felt that we could actually point and pinpoint specific vertical that really changes the whole picture, if you will. So I think that, you know, we continue to believe that it’s something that just overall people are hiring. They’re perhaps maybe not as aggressive as they were in the first quarter of 2011, but it’s still a good market out there.

Ming Zhao – SIG

Okay. Thanks for that. Second question is really looking at your print advertising business. This fourth quarter, this revenue figure has come down to below 1 million. Just wonder, why don’t you just completely remove this business? If we look at this revenue figure, probably it’s not making money at all, right? What’s the benefit of keeping this business and what’s your thinking there?

Kathleen Chien

Ming, the number is not 1 million. I'm not sure where you're getting that number.

Ming Zhao – SIG

I'm sorry, a million pages, less than a million pages.

Kathleen Chien

Yes, it’s 850,000 pages, but in terms of -- again, there’s some seasonality impact to that as well. So I think to us, we’ve always said that this is a market-by-market decision. It is not a one-off decision that we made on the Print side. And again, we’ve been on the same trajectory of rationalizing the plan and then going through that city by city. We do not believe that it’s something that we need to make as a one-time kind of across-the-board cutoff because again there were different partnership structures with different people that we work with and different cities, so, different pricing levels, different timeline to when the contracts come up for renewal, and a number of things. So, again, we’re taking that as a city-by-city decision.

The trajectory or the direction we’re headed though I think is very clear though, which is again rationalization, termination, becoming a smaller part of the total. So I don’t believe that it really changes how we need to do things at this point in time. It’s becoming less meaningful. We’ve said that first quarter we expect the contribution to total revenues to come down to down to less than 15%. Probably in the next, you know, subsequent quarters it will be lower than that as well. But again, it does not need to be and it won’t be a one-off decision because the structure is actually a city-by-city structure, and we believe that we’re managing and doing the right thing by working through that, through a series of steps to get there.

Ming Zhao – SIG

Okay. Thank you.

Operator

Thank you. And our next question comes from Ms. Wendy Huang again from the company of Royal Bank of Scotland. Thank you. Please go ahead with your question.

Wendy Huang – Royal Bank of Scotland

Hi. Just a housekeeping question, what was the depreciation and amortization cost in 2011? Thank you.

Kathleen Chien

I don’t have that number right on me, Wendy. I can provide that to you. But it’s a small percentage -- it’s a single-digit percent of revenues.

Wendy Huang – Royal Bank of Scotland

Sure. We just need that for the modeling purpose.

Kathleen Chien

Yes, I can provide that to you offline.

Wendy Huang – Royal Bank of Scotland

Okay. Okay, thank you.

Operator

Thank you, Wendy. The next question comes from Dick Wei from the company of JP Morgan. Thank you. Please go ahead with your question.

Dick Wei – JP Morgan

Hi, good morning. Thanks for taking my questions. First question is on the ARPU, if you would, versus the customer growth in the longer term, which area would you be focusing on more down the road? Is it like 50/50 or you’ll be focusing more on ARPU in the future? Thank you.

Kathleen Chien

I think in terms of our day-to-day management, we always focus on customer growth because I think pricing is something that is we cannot really take in a vacuum, if you will. It depends on the competitive structure, it depends on the overall market sentiment and a number of things. So I think that, first, we always have to focus on customer growth as the number one thing.

Pricing, last year was the very first time that we actually got a broad-based price increase, which really helped us quite a bit I think throughout the course of the year. But it’s not something that we have committed to doing every year at this point in time. So I would say that we would focus firstly on trying to continuing to be aggressive on customer growth and acquisition, but the pricing is something that if we can get our users to work with us on a sort of a more steady and long-term basis rather than a shorter kind of contract terms, then that comes anyways as they get familiar and more experienced as a user at 51job services.

Dick Wei – JP Morgan

Okay, got it. And then secondly, just want to find out more about for the PPO business or the Other HR business, in the medium term, what kind of margins do you think the business is generating? Are you seeing like maybe just breaking even because of initial ramp-up? How should we look at that currently and then in the next couple of years, what kind of margin profile will be like for the Other HR Services? Thank you.

Kathleen Chien

Well, Dick, firstly, because we actually run everything as a sort of integrated platform, so we actually don’t break out the margins by the different segments, if you will, because they’re actually very integrated. But having said that, we believe that this is all a revenue kind of scale-driven business. So as we get larger in scale, we believe that there’s more leverage in the model and hence more margin upside and expansion. So we believe that the trajectory as we grow should be something that we’d be able to capture some operating efficiency and leverage from.

Dick Wei – JP Morgan

Okay. Kathleen, just lastly, what is the kind of the customer overlap in the Other HR Services versus your recruitment customers?

Kathleen Chien

Essentially is 100%, but in terms of the number of customers served, it’s actually very different. In the outsourcing space, we’re still talking four digits, a few thousand customers, whereas in the recruiting side we’re talking six digits, hundreds of thousands of customers. So the overlap is 100% for most part, but in terms of the magnitude of number of customers served, it’s actually a couple of degrees off.

Dick Wei – JP Morgan

Okay, great. Thank you so much for the help. Again congratulations on a good quarter. Thank you.

Operator

Thank you. (Operator Instructions).

The next question comes from Andy Zhao from the company of Bank of America-Merrill Lynch. Thank you. Please go ahead with your question.

Andy Zhao – Bank of America-Merrill Lynch

Hey, guys. I’ve got a very general question. One, can you please update us with the competition landscape, the revenue share, difference in business strategy? Also, could you please comment on whether the smaller websites like (inaudible) these kind of websites, have any competition with us? Thank you very much.

Kathleen Chien

On the competition question, I mean if we’re talking just online services, I think the only competitor of scale to us now is really just zhaopin.com. There is nobody else that’s actually even close when it comes to that.

If we talk about the overall strategy, I mean we do actually try to -- we are actually in the market with a sort of integrated service platform which actually includes much more than just recruitment services. I’ll highlight the fact that last year in the fourth quarter, Other HR Services combined actually contributed 34% of our total revenues. So the way that we approach the market and the breadth of product offering we have is actually significantly greater than any of our customers.

So we have different customers and different -- different competitors and different customer segments, but certainly I think that we’re coming with a much more comprehensive value proposition to the marketplace.

I don’t have detailed data necessarily on competitors because they might not use the same -- they’re not public companies still. I can only comment on kind of some things that’s been reported. I think that last year, I mean in the second half of the year, I think we probably even slightly outgrew our friend Zhaopin here. But I think China HR has alluded to the fact that they’re in a very sort of low-growth, maybe single digits. So I think that’s very significantly off the pace of where we are at this point in time. So that’s kind of the competitive landscape.

Rick Yan

Yeah, in terms of the current (inaudible) imitations, people like (inaudible) we don’t come across them at all because they really focus on the very low end and pretty unorganized segment of the recruit market. I think we -- we don’t think we serve the same customers or serve the same job functions. I don’t think they have the same sales coverage as we do. We transact with a lot of customers. We cover more than 70 cities now, and we have a very big sales team. It’s a very different kind of segments, and I don’t think we see them as a direct competitor at this stage.

Andy Zhao – Bank of America-Merrill Lynch

Okay. Okay, got it. But do we have any cooperation with these kinds of websites? I know some other companies, they do not take (inaudible) as a competitor but they have cooperations with them to channel some traffic to our website. But do we have any kind of [consolation] regarding this?

Rick Yan

We have very, very healthy traffic growth every year, and as you can see from some third-party statistics, that our traffic growth is actually very health. 51job has always been a destination site. A lot of the users coming to 51job are typing www.51job.com on their browser. We do kind of online marketing campaigns, but most of the users come to 51job directly. We don’t see any need in terms of getting traffic from these guys, and I don’t actually think they have that much traffic to start with.

Andy Zhao – Bank of America-Merrill Lynch

Okay. Thank you very much.

Operator

Thank you.

Mr. Yan, there are no further questions at this time. Please continue with final -- sorry, please with any final comments. Thank you.

Rick Yan

Thank you for joining us today. We look forward to speaking with you next quarter. And we value your continued support of 51job. Thank you and bye-bye.

Operator

Thank you. Ladies and gentlemen, this concludes the 51job, Inc. fourth quarter and fiscal year 2011 conference call. Thank you for your participating. You may now disconnect.

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