Friday, May 21, 2010

The Great: JobStreet Corporation Bhd

A familiar name but an unfamiliar company, Jobstreet Coporation Bhd is definitely on my The Great List. Founded in 1996 by founder/CEO Mark Chang Mun Kee, Jobstreet Corporation Bhd successfully got itself listed on the MESDAQ before transfer its listing to the Main Board 3 years later.
Business Model
  • Jobstreet business model is easily understandable. The principal activities of Jobstreet are providing jobs advertising services on the Internet. It created 2 virtual agents Siva and Lina to approach 2 difference sets of Employers and Jobseekers.Although the majority of its users are the jobseekers its actual source of incomes comes from the Employers. It is important that Jobstreet satisfies both sets customers even if its cash flow comes from only one source because Employers decide to post the ads base on the database size. In short, the larger the database sizes the more likely Jobstreet of getting the deal. And, it also work the other way around, as jobseeker will only use a job search site if it able to larger variety and more jobs offering. Well, this is where Jobstreet’s strength lies. However, Jobstreet business relies a lot on the general macroeconomics of the country it sets its foot in and also the world economy as, well like in Malaysia, most of its customers are MNCs.

What I like:
  • Jobstreet’s competitive strength is undeniable especially in the places where it has established itself. Why is that so? Well, that has been well explained in its business model section. Let’s do a scuttlebutt (made famous by Phil Fisher) on yourself. If you are seeking for jobs, you will definitely pick the one that offers more job selections when choosing a job search site. And if you are the one hiring, you will definitely pick the one with the larger database as it is more likely to get the talent you need. Plus there are more choices. You get to pick the best. Remember, every job posting incurs cost and definitely you’ll pick the established one over the others.
  • High high profit margins. Jobstreet gross profits margins has been staying above 70% over the past 5 years and this shows that it is a low cost business. Operating profit margins is 39.59% (FY2008) and improving. All these show their competitive strength and advantage they have over the others.
  • Growth wise, the company’s earnings has grown at the compounded rate of 33.3% while diluted EPS has grown 32.4% from 2004 to 2008. It is expected the world economic slump in 2008/2009 has hurt its business as its earnings drops about 30% in 2009 versus 2008. Well, I am pretty confident it will be able to recover in the long term. Locally, there is an increasing trend of job hopping. According to research done by TNS Malaysia in 2005, 74% of the country's younger employees said they changed employers over the past five years, with 39% intending to change employers again within the next two years. Although this research is done in 2005, we are definitely seeing the increasing sign of job hopping among the younger Malaysian over the past few years. There is still room for growth as Internet penetration in this country is still low and I believe sooner or later they are able to take this business away from…maybe The Star.
  • As of Dec 2009, Jobstreet has a total of cash and equivalent of RM50.7milion versus total liabilities of 29.5million. That is hell lots of cash to me. Well, the shareholders had approve to used all of these to invest in 104 Corp Taiwan a leading online job search service provider in Taiwan pretty much like Jobstreet itself. How would this impact its balance sheet? Well not much. Its total debt stands in RM700k while short term debt is only to leases at RM200k. This can be well covered by its earnings.

  • Jobstreet is No.1 in Malaysia and Philippines and No.2 in Singapore. Investment in India has been disappointing and still in red. It has bought the remaining shares from Sun TV in its operations in India to better manage it by having full control. It remains to be seen how it goes as competition is heavy in India. This may seen as a bad investment by Jobstreet BUT there is a sign of rational management by Jobstreet. They have shown that they might have learned from this mistake. We all knew that it is tough anyone even established a name to come into Malaysia to take a big slice of pie from Jobstreet and the same goes vice versa. So instead of jumping into straight competition, they purchase shares of 104 Corp Taiwan as proxy to Taiwan’s and China’s market. Recently they just accumulate over 20% of 104 Corp shares and this enable them to account equity 104 Corp’s earnings into theirs. (well, we can debate about this someday). Beside this, they also invested in Recruit Holdings a leading job services site in Hong Kong. So geographically, Jobstreet is pretty diverse although 62% (2008) of its earnings still comes from its local operations.
  • Some may not like this, but I think this is a plus point – with an IF. You see, Jobstreet does not pay most of their earnings as dividend like others (104 and Recruit). They are paying 20-25% and keeping most of them as cash. Running their business does not require high capital. So they won’t be much invested into their own business. So, the likely things that they’ll do is to invest in others business and possible M&A. That will help to drive growth like what Kraft did – with an IF. Historically, they did well apart from India ops.
  • Their R&D is doing its job as well and recently they have just patented “Text Zoning in a Semi-Structured Text” which helps employers to better filter their searches based on skills descriptions.

What I don’t like;
  • If you take a look in their 2008 Annual Reports, you could see that they have RM18million invested in unit trust and that is more than 10% of their total assets invested into unit trust. Shareholders invested into Jobstreet because they like the nature of their business not because of unit trust.
  • Another questionable thing is their statement on their investment decisions: “…for dividends and capital gains…”. Well, I am expecting something more strategic than that. It is OK if Berkshire Hathaway makes such statement as that is what they do but for Jobstreet… it will be better if they are able to explain more on that because it may sounds a little speculative with shareholders money.
Nevertheless, JobStreet Corp is still a great investment to me. The growth potential for me is enormous but will depend on its management but I truly believe their management. They are in the Great List for me.

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