51job, Inc. ( JOBS)

Q3 2010 Earnings Call Transcript

November 9, 2010 8:00 pm ET

Executives

Linda Chien – Assistant VP, IR

Rick Yan – CEO

Kathleen Chien – COO and Acting CFO

Analysts

Jenny Wu – Morgan Stanley

Wendy Huang – RBS

Alicia Yap – Citigroup

Presentation

Operator

Good morning and good evening ladies and gentlemen. Thank you for holding. Welcome to the 51job Incorporation's third quarter 2010 conference call. (Operator Instructions)

I will now hand the conference over to Ms. Linda Chien, Assistant Vice President of Investor Relations. Thank you, Madam. Please go ahead.

Linda Chien

Thank you, Mimi. And thank you all for attending this teleconference to discuss un-audited financial results for the third quarter ended September 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 third 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 these call statements regarding targets for the fourth quarter of 2010, future business and operating results constitute forward looking statements within the meaning of Section 21E 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 expectation and actual results could differ materially. Among the factors that could cause actual results to differ – the number of recruitment advertisements placed, sales orders received and customer contracts executed during the remaining weeks of the fourth quarter of 2010; any accounting adjustments that may occur during the quarterly close; fluctuations in the value of Renminbi against the U.S. 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 volatility; 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 factor 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 fourth 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 third quarter, followed by Kathleen with her detailed review of our financial results. Then I will discuss current market conditions, as well as our strategic objectives and guidance for the fourth quarter of 2010. Finally, we will open the call to your questions.

Successfully executing our growth initiatives, we achieved record revenues and profits in the third quarter. Revenues of RMB272 million or approximately $41 million were ahead of our forecasted range of RMB255 million to RMB265 million.

Momentum in our online business remains solid as we continue to acquire new customers during the quarter. We believe the addressable employer market is still highly underpenetrated in China and will further expand driven by economic development. We are seeing significant traction across the Board as we simultaneously add employers from existing cities and new geographies.

The number of employers using our online services in the third quarter exceeded 142,000, a 56% increase compared to the year ago quarter. On the job seeker side, we now have more than 44 million registered accounts up from 37 million at the end of last year.

With our powerful brand, high product effectiveness and unparalleled sales coverage, we are moving forward aggressively to strengthen the largest online platform connecting HR managers and job seekers in China.

We are investing in technology and driving industry innovation with the introduction of new features and functionality and continue to differentiate ourselves from the competition with a proven business model to achieve sustainable and profitable growth. As we realize the potential of the online space, we are at the same time making steady progress in the development of other HR services areas.

Revenues in this area saw another quarter of solid growth, driven by sales of our HR outsourcing services. The outsourcing market in China today remains largely latent but we believe the long term prospects are very exciting.

With the government's initiatives to upgrade the structure of the Chinese economy, new policies and new implementation measures will be introduced to advance human resource management practices and strengthen the social welfare system. It will in turn drive additional customer demand for our outsourcing services.

With our vast customer base and an extensive service network, we are well positioned to capture this great opportunity. Although, the robust rebound in market demand this year resulted in greater sales and marketing expenses, as well as headcount additions, we monitor costs closely.

In capitalizing on the scalability of our operations, we achieved record profitability in the third quarter. We set new heights with gross margin of 68.4% and operating margin of 26.8%. Non-GAAP fully diluted earnings per common share were RMB1.26, which exceeded our guidance range of RMB0.95 to RMB1.05.

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