Archives June 2013

Millennium BCP opens new branch to enhance business opportunities

The Portuguese bank Millennium BCP (Banco Comercial Português S.A.) yesterday celebrated its new branch in the territory, located at the Finance and IT Center of Macau building, in Avenida Comercial de Macau. In a launching ceremony held yesterday at MGM Macau, the CEO of BCP, Nuno Amado, emphasized the new branch “has more space and provides an excellent environment to further develop businesses.”

With branches in Macau, China, Angola, Mozambique and Poland, the Millennium BCP is hoping to enhance business opportunities within Portuguese-speaking countries. “This new branch allows the further development of BCP not only in Macau, but also in other countries we are represented in,” Amado explained. Nuno Amado revealed there are two main goals and areas of business behind the new branch launch: “We wish to develop our operations within the triangle China-Africa-Portugal, as we have a language and history in common. We also intend to see the Renminbi market evolve, since it is a business which is not that developed yet, so I believe we should focus on this area.” Moreover, he added that “there are more and more Chinese companies investing in Macau, so this is definitely an area where BCP could evolve.”

The CEO of Banco Comercial Português S.A. emphasized that the Macau branch recorded “a significant growth” in 2012, almost tripling the results of the previous year. Following such results, the bank plans to increase its workforce.

“We need to recruit more staff and we are able to expand by having these new facilities,” he added.

Furthermore, Nuno Amado highlighted the role of the Macau branch as a platform “to promote business opportunities between Chinese enterprises and companies in Portugal, Brazil, Angola and Mozambique.” Building a bridge between the East and the West seems to be one of the challenges the Macau branch is ready and willing to face.

The new branch launch ceremony included a ribbon cutting formality with the presence of several personalities, such as Wan Sin Long, a board member of the Monetary Authority of Macau, Vítor Sereno, the Consul General of Portugal in Macau and Hong Kong, the director of Banco Comercial Português S.A., José João Pãozinho, the Senior Assistant Director-General of Economic Affairs Department of Liaison Office of the Central People’s Government in the Macau and Conceição Lucas, the Executive Director of BCP, among others.

Results of Millennium BCP in Macau tripled in 2012

The results of the Portuguese bank Millennium BCP in Macau have tripled in 2012, the director of Banco Comercial Português S.A., José João Pãozinho, revealed yesterday. During the new branch launching ceremony, held yesterday at MGM Macau, the director of BCP announced the bank made MOP 177.7 million in profit, more than MOP 11 billion in deposits and MOP 10 billion in loans. According to José João Pãozinho, “the results have tripled” compared to numbers from the previous year. In his opinion, the great results are mainly the outcome of “a significant growth in the credit portfolio and good results in terms of clients’ deposits.” He concluded saying that “the branch registered extraordinary results following the development of a business platform that Portuguese companies have put in place in Macau and China”.

51Job: An Attractive Chinese Small-Cap Pick

As the global economy takes a route to recovery, a bullish momentum prevails in the markets worldwide. However, in China things are a little different as analysts fear that the authorities can no longer sustain the high growth rates. The Shanghai Composite Index fell by more than 2% in the past year. The security regulators in the Chinese economy have taken measures to keep up with the global trend as it gears the economy towards a wave of IPOs. This provides investors with an opportunity to take advantage of the low stock prices to add value to their investment portfolio.

The services sector of the economy has been one of the fastest growing fields; however, the growth has somewhat stagnated in the recent past. In May, there were signs of weak growth again raising concerns about sustainability. According to Shen Lan, an economist at Standard Chartered, the economy is facing a stimulus lag that will soon payoff in the coming quarter. The employment index improved to 50 prior to an index of 49.6. With more firms willing to expand especially in the green technology sector, the employment index is expected to improve sharply. 51Job Inc. (JOBS) is one of the companies that will benefit greatly from the recovery in the aforementioned index.

This article will discuss the upside potential in 51Job by analyzing in detail the internal as well as external factors that makes this small cap stock an attractive pick.

What Does 51Job DO?

51job is a leading provider of integrated human resource services in China aiming to capitalize on recruitment related services. Through online recruitment services at 51job.com and print advertisements in 51job Weekly, it enables enterprises to attract, identify and recruit employees and connects millions of job seekers with employment opportunities. 51job also provides a number of other value-added human resource services, catering to business process outsourcing, training, executive search and compensation and benefits analysis. 51job has a call center in Wuhan and a nationwide sales office network spanning 25 cities across China.

The company has collaborated with six material group entities namely 51net, Tech JV, Qian Cheng, AdCo and Adco Subsidiaries and WFOE. The joint venture provides advertising, consulting services and online recruitment and value-added telecommunication services.

Revenue Generation

The enterprise reports its earnings based on three core segments i.e. online recruitment services, print advertising and other human resources related revenues. The majority of the revenues are derived from recruitment and advertising services.

Online recruitment services share in the total revenue increased significantly in the last two years from 50% to 62.4%. Revenues through this segment are obtained by charging companies with advertisement and recruitment fees at the website. The website also provides companies with a facility to download resumes and management tools services. Print advertising share in revenues declined significantly in the past two years from 25% to a mere 7% as the management adjusts to the boom in the IT sector.

Again, employer companies are charged with a recruitment and advertising fee placed at 51Jobs Weekly across China. Contracts in this segment vary from single to multiple advertisements and are generally more short-term. The last segment, like the online recruitment services, experienced an increase in revenue share from 25% to 31%. The human resource related revenues as the name suggests generate revenues via catering to the employees of the company’s corporate clients.

Financials

The company reported an increase in its consolidated revenue of 11.3% in 2012 consistent with the average 3-year growth in revenue of 23.2%. However, the recent quarter revenue of 2013 amounted to $61.2 million, showing a decline of 0.1%. Analysts expect the decline to quickly reverse given the forward market expectation. Net income of the company also showed an increase of 21.4% in 2012 keeping up with the 3 year growth 61.1%. The company has managed to beat the industry trend as the industry ratios lingered in single digits. Given the competitive nature of the industry, 51Jobs upholds its competitive edge by relying on operational synergies to cut down costs. The EPS% for the 5 years touched 34% as per Reuters estimates.

The capital structure of the company is more geared towards financing from within. The company has not resorted to debt financing in its operations and has no plans to do so. Thus the company’s operations are well-cushioned against market risks. The liquid assets at the end of 2012 consisted of $408.6 million in cash and short-term investments. The recent quarter announcement marks an improvement in the liquidity position of the company. Thus 27% growth in asset base of the company is financed through growth from within.

Growth Strategy

Rick Yan, CEO of 51Job, announced that based on current market conditions and the declining share of print advertising revenues, the Company’s revenue target for the second quarter of 2013 is in the estimated range of $63.6 million to $66.0 million, an expected increase of roughly 6%. The stated increase in its revenues will be brought about by pursuing a multi-dimensional growth strategy.

Firstly, the management seeks to capitalize on the anticipated growth in the Chinese economy. As the employment index touch 50 and the expansive path undertaken by the firms, increase in revenues is inevitable. On the supply side, skilled and educated workers now comprise a major portion of the labor force. Secondly, the Chinese economy is still undergoing a development transition with more workers willing to accept new recruitment channels and human resource services. Growth in the IT sector will translate into an increase in customer base for the company.

According to CNNIC estimates, the number for internet users has showed an increase of 662% in the last 9 years making China the largest Internet user of the world. It is for this reason that the management has decided to increase its provision of online recruitment services. The claims can be authenticated by an increase in capital expenditure from $60 million to $138 million in the last year. It should be noticed that the free cash flows remained constant despite this increase. Lastly, mobile Internet website has been developed to increase access through mobile devices and utilize most functions available on the website. The construction of a call centre in Wuhan is anticipated to triple its catering capacity. Expenditure on sales and marketing also remained roughly constant for the recent quarter despite a decline in earnings. The company relies on the former to build a strong customer base and repute for itself. Thus, 51Jobs is all set to cater to the growing demand in the economy.

Competitive Advantage

As stated earlier, the enterprise operates in an extremely competitive environment facing competition from Adecco, Randstad ADR and Paychex Inc. It has been able to maintain its competitive edge by relying on operational synergies to maintain an operating margin of 32.5% as compared to an industry average of 2.5%. In the online recruitment service segment, a wide array of audience is catered to. The websites are updated on hourly basis which helps attain a high turnover. The idea to open up the websites to mobile users is expected to generate higher earnings in the near future. Also, the company is able to charge multiple prices based on the diverse customer base. The company mostly caters to large multinational corporations as well as local Chinese enterprises of all sizes. In the print advertising segment, publications are more city specific and short-term. Thus, the management is able to maintain relatively stable stream of revenues using the aforementioned techniques.

Risks

The risks associated with this small-cap stock are centered more towards economic factors. One of the potent risks that the company is exposed to is seasonality in its operations. The recent transition towards the provision of IT services makes the earnings of the company more volatile. Seasonal fluctuations in the demand for human resources add to the fluctuations in its operations. Inflation (although not currently) poses a threat to the earnings of the company. Inflation rates of 5.4%, 3.6% and 2.1% put an upward pressure on the costs of the company and if continued, can lead to a substantial decline in earnings. Lastly, the exchange rate risk associated with the stock cannot be ignored. Investment in derivative securities by the management does mitigate the associated risks nonetheless it cannot be disregarded.

Conclusion

The stock currently trades at $64.89 with the total market capitalization of $1.9 billion. The current P/E ratio for the stock is 25.8; however, the ratio is projected to decline to 17.7. The enterprise multiple ratio for the 12 months is expected to reach 31.41 while the current ratio stands at 33.72. The P/B and P/CF ratio equals 4.1 and 20.6, above the industry trend. The stock is up 39% year to date, and keeping in mind the growth potential, the upward trend is expected to continue.

After the careful evaluation of the company, I believe JOBS is an attractive investment and the stock will return handsomely over the short term as well as long term. The company is expected to benefit from the recovering economy offsetting the minor weaknesses. The management has been able to maintain its strategic position by adjusting to the changing market trends and is expected to do so in the future.

Money talks in sluggish economy

During an economic downturn, job seekers tend to attach greater importance to the overall compensation and cash incentives they can earn, according to a report by the Hong Kong-founded executive recruitment firm MRIC.

Of the 3,820 professionals interviewed on the Chinese mainland, 35.9 percent requested an increase in overall compensation or commissions, which outweighed other relevant concerns, such as finding a clearer career track or having the opportunity to face more challenges, the report found.

Meanwhile, the number of Chinese mainland respondents dissatisfied with their current level of compensation rose from 54.2 percent last year to 57.8 percent in 2013. Only respondents from Taiwan reported a greater level of dissatisfaction with their current earnings.

A lack of satisfaction with compensation may be tied to mounting living costs and lower bonuses this year. Many people aim to earn higher salaries in order to improve their housing conditions and achieve a higher quality of life.

With a score of 99, Shanghai ranked 30th of 131 surveyed cities in terms of living cost in 2012, up 11 places from a year earlier, according to a survey by the Economist Intelligence Unit. It fell just short of matching New York, which scored 100. Just five years ago, Shanghai ranked 53rd on the list.

“Respondent sentiment is generally more conservative, with a lowering of job-change intentions from the previous year, while stress has taken its toll on professional talent, who are increasingly aware of their quality of life,” said Christine Raynaud, chief executive officer of MRIC.

Workers will change jobs if it makes financial sense, but many of them have become more averse to risk and require a major salary hike to make a move, according to the report.

Taking stock of China’s logistical shortfall

Employers in China face such a severe shortage of logistics staff that one British company is offering work to 20% more candidates than it has jobs.

Paul Brooks, sales director of Unipart Logistics, said that the company regularly offered employment to between 10% and 20% more candidates than it had jobs because they knew that within a week this number of candidates would take up job offers from other employers. The firm employs 250 staff in China.

At a press conference during a recent visit to Unipart in Oxford by a Chinese delegation of logistics and education officials to the UK, Brooks said that staff retention was also a major issue, with the industry experiencing an annual staff turnover of more than 50%. Even a small wage increase would entice employees to move to another employer. “They will leave for 30p more, they will just not turn up,” said Brooks.

Haoxiang Ren, vice-president of the China Federation of Logistics and Purchasing, told Recruiter that in China “the skills shortage is for every subject and every position in the sector.”

Ren explained there was a fundamental mismatch between the demands of employers and what the Chinese education system is turning out. “Demand is like a pyramid,” he said, with many more lower level operative-type jobs at the bottom, and relatively few jobs for managers at the top.

Despite this, he explained that around 400 universities in China provided 100,000 graduates a year studying logistics as a major part of their degree, leading to a glut of people looking to enter the sector at managerial level.

The problem is made worse, “because more and more parents are looking for their children to go to university and not college”, he added.

In contrast, Ren said that only 90,000 graduates with a relevant qualification left 800 secondary vocational colleges (for 15-18-year-olds) — an insufficient number to fill the far more numerous lower-level roles. “It [the education system] doesn’t fit the nature of the industry demand,” he said.

Tech and execs see least talent movement in China

China’s technical workers in IT and engineering roles saw the lowest rate of people changing jobs in 2012 of any business function, at 18% and 24% respectively, followed by board-level staff at 27%.

The highest degree of movement was seen in government affairs (55%), construction (50%) and production (42%), according to Chinese recruitment firm RMG Selection.

A survey from the company of 2,000 Chinese workers shows that for 2013, 61% of IT workers have a greater desire to change jobs. Engineers (52%) were also seeing renewed keenness to move, as were production workers (57%) and supply chain professionals (52%).

The full Talent Flow Survey 2012-2013 is available via the RMG website. “http://www.rmgselection.com/downloads/RMG-China-Talent-flow-Survey-Report-2012-2013.pdf”

Insight on China’s college graduates’ employment report

The Chinese education consulting firm MyCOS has published its 2013 Chinese College Graduates’ Employment Annual Report. The report looks at the job situation of graduates from this year and last, who are just starting off their careers. The report offers important insights for Chinese students choosing their majors.

Q1: What does the report tell us?

A: Mangmang, what we have seen from the report is very alarming. The employment rates for 2013 are far lower than last year. By early April, only one out of three graduates with bachelor degrees have landed jobs. Just last year the employment rate was almost 50 percent in April, and over 90 percent by the end of the year.

For master’s degree graduates, the prospects look even gloomier. Only one of out four were recruited by early April. People are beginning to ask how much is your diploma worth in the job market. And interestingly, in sharp contrast to university students, vocational school graduates are having much less trouble moving into the labor market. We visited one leading vocational school, and were amazed at how easy it was for students to find jobs.

Rural youth encouraged to become self-employed

Many young people in rural China hold the belief that earning money in a city is the only way to be able to afford a home and family. Not Li Shuhua.

The 30-year-old, who was born in Xishan Village of Lianhua County in east China’s Jiangxi Province, decided to run his own ecological farm in his hometown after four years of work experience at horticultural companies in Guangdong and Zhejiang provinces.

“I decided on the farm because of people’s growing awareness of food safety which has made green agricultural produce more competitive,” said Li, who was educated at Jiangxi University of Science and Technology.

Li’s farm covers an area of 1.3 hectares, primarily growing ecological grapes and breeding pigs with an annual income of about 200,000 yuan (32,660 U.S. dollars).

More than half of the 1,000 villagers in Xishan have swarmed to southeastern coastal cities to seek better-paid jobs in the past year.

This is typical of villages in China.

However, with the current record-high 6.99 million graduates struggling to secure decent jobs in cities, Li’s self-employment experience is an inspiration for many.

As the pressure of finding a job grows, more graduates are choosing to go back home to realize their dreams.

The Chinese government has promised to recruit more university graduates who have taken on leadership roles in the countryside in a bid to encourage more college students to work in rural communities after graduating.

About 10 to 12 percent of newly recruited public servants in the country this year will be college graduates who will have had experience of working as “village officials,” according to the State Administration of Civil Service.

The number of university students with official positions in rural communities is expected to increase to 600,000 by 2020 from the current 200,000, according to the administration.

Wu Yongming, vice chairman of the Jiangxi Provincial Academy of Social Sciences, said that more talent is needed in rural areas, especially those specializing in agricultural, medical and educational fields.

“In order to gather grassroots experience, it is also necessary for the Chinese youth to find employment or start a business in rural areas,” Wu said.

During talks with young representatives on Chinese Youth Day on May 4, Chinese President Xi Jinping said he pinned his hope on the Chinese youth for innovation and national advancement.

The president expects the young generation to make great accomplishments, and encouraged them to work at the grassroots and the front line in order to hone their skills and enhance abilities required for furthering their career.

“Young people should emancipate the mind, advance with the times, forge ahead and innovate so as to gather experience and make achievements,” he said.

Just like Li Shuhua.

Alibaba Plans Worldwide Intern Indoctrination Program

China’s Alibaba Group announced the launch of an intern training plan, aiming to recruit 102 interns around the world and provide one-on-one training by business leaders and executives within the organization.

According to Alibaba, interns who participate in this program should have dreams and positive energy. Those dreams do not need to be related to e-commerce, said Alibaba.

The internship will last for one to two months. The first batch will include about 30 people, who can be students or those already having some working experience. Once admitted, they will gain meals, accommodation as well as a salary.

To ensure the efficiency of the internship, the classes of the interns will be led by Alibaba’s executives and business leaders. In addition, those executives and business leaders will provide one-on-one trainings to interns. The performance in training interns will reportedly influence the promotion of the executives.

Alibaba said they will not require those interns to stay in the company after the training. They hope the interns can gain something from the training and become outstanding rural teachers, cooks, lawyers, entrepreneurs, or participate in politics in the future. The leader of this internship program said that during the program, the interns can learn the unique culture of a Alibaba and the company hopes more young people can access the ongoing huge changes of Chinese economy.