Jobstreet Corp Bhd
(Jan 5, 0.465 sen)
Downgrade to “reduce” from “hold” with a target price (TP) of 30 sen: The Edge weekly reported that the recent rally in Jobstreet Corp Bhd’s share price is attributable to expectations of a possible venture in a new core business, given its management’s successful track record in founding tech start-ups.

Nevertheless, Jobstreet chief executive officer and founder Mark Chang was reported as saying the company is not planning any immediate announcements related to its future growth.

Meanwhile, Jobstreet has a one-year commitment to help Seek Asia Investment Pte Ltd(Seek) manage the transition of Jobstreet’s employment portal.

We are not surprised by the news given the decent value in Jobstreet’s remaining assets. Nevertheless, we see the recent surge in share price as unsustainable due to the near-term overhang from business transition activities with Seek Asia, a subsidiary of Seek Ltd, given that the management still needs to assist in managing the portal.

Apart from that, Jobstreet needs to find a new core business aside from the employment segment given that it already agreed with Seek not to compete in the recruiting business in the coming two years; and marketing and selling of vocational training and education courses through online channels in Malaysia, Singapore, the Philippines, Thailand, Indonesia, and Vietnam for one year.

Separately, Jobstreet could grow its remaining assets by raising its associate stake in the Taiwan-listed employment service provider, 104 Corp, but it may need to raise more than RM460 million to buy the remaining stake in 104 Corp.

Overall, Jobstreet will need to raise funds to finance its next core business or grow its remaining assets at a faster rate.

Despite Jobstreet’s net cash balance of over RM44 million, we think it would need to seek funding to grow its remaining assets or invest in a new core business. Hence, we have cut our rating from “hold” to “reduce”, with an unchanged TP still based on 16.8 times 2016 price-earnings ratio (PER), a 30% discount to the IT services sector PER of 24 times.

We see the recent surge in share prices as not sustainable. Hence, this provides a good opportunity for investors to trim positions. Switch to GHL Systems Bhd for tech sector exposure. — CIMB Investment Bank, Jan 5.

This article first appeared in The Edge Financial Daily, on January 6, 2015.