51job Incorporated Q2 2010 Earnings Call Transcript

51job Incorporated Q2 2010 Earnings Call Transcript
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51job Incorporated (JOBS)

Q2 2010 Earnings Call

August 5, 2010 9:00 pm ET

Executives

Linda Chien - Assistant VP, IR

Rick Yan - CEO

Kathleen Chien - COO and Acting CFO

Analysts

Alicia Yap - Citigroup

Wendy Huang - ABN AMRO

Jenny Wu - Morgan Stanley

Ashish Thadhani - Gilford Securities

Presentation

Operator

Good afternoon, ladies and gentlemen. Welcome to the 51job Incorporated second quarter 2010 conference call. (Operator Instructions)

I will now hand the conference over to Ms. Linda Chien, Assistant Vice President of Investor Relations.

Linda Chien

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Thank you, Maggie, and thank you all for attending this teleconference to discuss unaudited financial results for the second quarter ended June 30, 2010.

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

A press release containing second quarter 2010 results was issued earlier today and a copy may be obtained through our website at ir.51job.com.

Before we begin, I would like to remind you that during this call, statements regarding targets for the third quarter of 2010, 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 third quarter of 2010; any accounting adjustments that may occur during the quarterly close; fluctuations in the value of the renminbi against the U.S. dollar and other currency; 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 third quarter of 2010 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 second quarter, followed by Kathleen with a more detailed review of our financial results. Then I will discuss current market conditions, as well as our strategic objectives and guidance for the third quarter of 2010. Finally, we will open the call to your questions.

Building off a strong post-Chinese New Year period in the first quarter, employers remained very active in their hiring efforts during the second quarter. As a result, our second quarter results exceeded expectations with revenues of RMB262 million or approximately US$39 million, ahead of our forecasted range of RMB250 million to RMB260 million.

An obvious highlight of the quarter was the terrific performance of our online business. This business achieved record revenues of RMB135 million, an increase of 74% over the second quarter of 2009, and 23% over the first quarter of 2010. On the strength of our brand, superior customer service and highly effective recruitment solutions, we believe that we are not only adding new customers at a rapid pace, but also capturing a greater share of recruitment budgets.

We have high confidence that we are cementing our leadership position in the Chinese online recruitment services industry. Although we are seeing increased adoption of online products by companies large and small, we believe the market remains under-penetrated.

We transacted with over 137,000 corporate accounts in the second quarter, our highest quarterly level ever. With a dynamic economy and an internet population of over 420 million and growing, we believe that our opportunity in China is fast. The momentum of our online business is robust, and we remain heavily focused on customer acquisition.

In light of the improved market sentiment this year, we increased headcount and spending in areas of sales and marketing as well as customer service and support to meet the demands of our expanding customer base. Despite these additional expenditures, we set new heights in gross margins of 68% and operating margin of 26% in the second quarter, by leveraging the powerful scale economies and efficiency of our operating model.

As a result, we achieved our most profitable quarter ever, with non-GAAP fully diluted earnings per common share of RMB1.11, which exceeded our guidance range of RMB0.95 to RMB1.05. This also marks our 29th consecutive quarter of profit, a record unbroken by the financial crisis and unmatched in our industry in China.

Due to favorable market conditions in our full execution, we are on track for a highly successful 2010. We have a clear strategic plan to drive profitable growth to deliver tangible results to our clients and to increase value for our shareholders.

I'll now turn the call over to Kathleen for more detail of our financial review.

Kathleen Chien

Thank you, Rick. Revenues for the second quarter totaled RMB262 million a 36% increase compared to the year-ago quarter. Print advertising revenues increased 7% to RMB72 million compared with RMB67 million in the second quarter of 2009. The year-over-year growth was primarily due to the improved market demand as well as a higher average revenue per page. However, as a result of the discontinuation of print operations in five cities this year so far, our page volumes have decreased by 9.5% over the year-ago quarter to about 2,600 pages.

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