You might wonder why would I cover JobStreet again though I just wrote about it almost 2 weeks ago. Well, in fact I have been holding JobStreet shares for quite some time now and I felt it is good share some of my research on this corporation. That is also a reason why I did not come out with a valuation or decision last post but today, you’ll get one.
Okay, the big question is how much would you pay for JobStreet?
Their 2009 Annual Report has just been released; let’s do a little recap on how it got into my Great List.
- Moat in Malaysia and Phillipines (the kind of business the Buffett likes), 2nd in Singapore but catching up quickly behind JobsDB. Recently, expanded into Thailand (Just launched in June 2009) and Indonesia. A quick check on Google shows that JobStreet would be the first to step into these countries. Operations in Indonesia especially is picking up fast.
- JobStreet has a unique barrier of entry. Their large database creates a barrier for their competitors to obtain employers. And their vast varieties of employers and jobs create a barrier for their competitors to grow their database. With their initiatives to be the first to provide such services in Indonesia and Thailand as well as their experiences of operating such business for more 10 years, you can be assured that they’ll have these 2 countries once they establish their ground. (Yes, I know political trouble in Bangkok is a concern but what we are looking at is the long term)
- Synergy and Strategy: They hit the 20% holdings threshold in 104 Corp and that makes them an associate. From the CEO’s statement, they’ll be leveraging on 104 Corp dominant positions in Taiwan and penetrate China’s market while JobStreet will concentrates on SEA operations. One of the largest similar company from Australia, SEEK Ltd has raise its stake to 22.4%, we should see more tangible synergies between them
Okay, Okay I got it so how much should I pay?
Well, its FY09 PE over 20 (versus RM2.00), it certainly does look expensive. Should we pay that much for its potential growth? We know the dip in earning last year is largely caused by the general world economy. If you do a little guesstimate say FY10 it grows back to the same earnings as in FY08 (they are certainly on track from the Q1FY10 report), we’ll see a PE of around 16. Still not cheap enough?
Actually, I am not a fan of valuating using PE method. I prefer DCF valuations. Anyway, there is no harm looking at both methods.
What is its value from my DCF valuation then?
I really like business like JobStreet as their business is simple and most “numbers” are predictable. Probably I should start with revenue forecast but I’ll keep it later after these:
- Cost of Revenue: RM15millions over the next 5 years and increase by 10% for the 6th to 10th year. (Whoa, 10 years forecast a? I’ll let you know why later)
- SGA Expenses: will be kept at 30%. Historically, we could see the management controlling this cost tightly over the years.
- Depreciation: RM 1.5 millions.
- Income Tax: Assuming 25% (Save the complexity of deferred tax and stuff)
- Discount Factor: Yes, this is a smaller corporation in market capitalization but from top to bottom, it looks like blue chip for me. So, a 10% discount.
- Revenue: Alright, this is the hard part. This is a business that highly correlates with the economy. (That’ll make things easy; most data are available on the Internet). Rather than looking at the GDP I’ll base on estimates on Total Employment , Internet Penetration and Population data.
Total Employment Growth (1982-2006): 3%
Internet Penetration Growth (1998-2008): 29%
Population Growth (1998-2008): 2.6%
Total Employment Growth (1999-2006): 4.2%
Internet Penetration Growth (1998-2008): 18%
Population Growth (1998-2008): 2.3%
Total Employment Growth (1997-2006): 3.1%
Internet Penetration Growth (1998-2008): 23.8%
Population Growth (1998-2008): 2.6%
Assuming Internet penetration in the US and Korea has hit saturation level. Both them stand at 75.7% (how coincident). So I’ll assume these 3 countries to hits saturation level at 75.7%. So with my a little complex calculation, Malaysia will hit saturation level in 2011, Singapore in 2012 (not bad huh we are quicker than them), Philippines in 2023!! See why I predict 10 years. And with such information I guesstimate the total revenue growth from all these 3 countries combine at CAGR 9% (9% only meh? I took 9% to stay a little more conservative vs its 20% growth rate). 9% is projected from FY09 data, not the best data but the more conservative the safer ma. What is the worst that can happen if I am too conservative ha? Miss the boat lo.
[Details: Revenue is assumed to grow at internet penetration rate. After saturation revenue is assumed to grow at total employment rate]
And what do I get? TADA! Yes, JobStreet Corp Bhd is valued at RM3.20. This is no rocket science so giving about 20% margin of error I'll get around RM2.60. Bare in mind, 9% revenue growth is pretty conservative as I only encounted for Malaysia, Singapore and Philippines (excluding potential growth from Indonesia, Thailand and Far East)
It is no secret that SEEK Ltd accumulated JobStreet shares at RM2.05. Now you see why. With its current price ranging from RM1.89 to RM2.05 recently, it is trading at 23%-27% discount. For the company of this quality, it is a BUY below RM2.60.
"I'd rather be approximately right than precisely wrong": Warren Buffett
This is based on my personal thoughts, opinions and my risk tolerance. It should not be considered as an investment advise. Please consult your financial advisor or do some research of your own before making any decision. You might have your own thoughts. I would love to here from you. You can always place your comments here and or email me privately at firstname.lastname@example.org