M&A brewing in JobStreet?

JobStreet Corporation Bhd
(Dec 27, RM2.80)
Maintain buy at RM2.81 with target price RM3.30: SEEK announced it is acquiring a 60% stake in JobsDB for HK$1.59 billion (RM632.87 million), translating into 22.1 times CY2010 enterprise value/earnings before interest, taxes, depreciation and amortisation (EV/Ebitda).

This gives SEEK greater exposure to e-recruitment advertising in the emerging markets such as Indonesia, Thailand and China. There, however, could be a potential conflict of interest for SEEK as it is now the major shareholder in JobsDB as well as JobStreet. It remains to be seen if SEEK would merge JobsDB and JobStreet (it owns 22.4%) as their presence overlaps in some markets.

JobsDB’s price tag of 22.1 times EV/Ebitda implies a 27% premium over JobStreet’s valuation. Although JobsDB is 38% and 26% larger than JobStreet in terms of revenue and Ebitda, respectively, JobStreet is 3.7 percentage points more profitable than JobsDB in terms of Ebitda margin and is expected to have a cash balance of RM67.5 million in CY2010F. A multiple of 22.1 times EV/Ebitda would imply a market cap of RM1.2 billion for JobStreet (RM3.55 per share versus our target price of RM3.30).

We maintain a buy for JobStreet with a RM3.30 target price based on one times PEG. While SEEK’s strategy is unclear at this stage, we think the acquisition sets a pricing benchmark for JobStreet’s shares. — HwangDBS Vickers Research, Dec 24