Its growth cooling, can Kanzhun stay employed in a slowing economy?

China’s leading recruitment company delivered double-digit third-quarter growth for most of its major metrics, though its revenue growth showed signs of slowing

Key Takeaways:

• Kanzhun’s revenue grew nearly 20% in the third quarter, but its net profit grew at less than half that rate
• The operator of the popular Boss Zhipin job requirement app expects its fourth quarter revenue growth to slow to about 14%

By Lau Chi Hang

China’s slowing economy is bad news for most, resulting in massive layoffs and growing numbers of unemployed. But such trends aren’t such bad news for recruitment companies, whose services remain in demand as the pool of workers swells. Within that space, Kanzhun Ltd. (BZ.US; 2076.HK) stands out as a strong countercyclical play, anchored by its popular, industry leading Boss Zhipin recruitment app.

Kanzhun’s countercyclical credentials were showcased in its last quarterly results released  this month, which were relatively impressive in a climate where many companies have entered single-digit revenue growth or even contraction. The company registered third-quarter revenue of 1.91 billion yuan ($262.2 million), up 19% year-on-year, as its operating profit rose by an even faster 26.5% to 330 million yuan.

Kanzhun’s customer and user metrics were also strong. Its total paid enterprise customers reached 6 million at the end of September, up 22.4% year-on-year, while its average monthly active users jumped 30% to 58 million. The company is also in solid shape cash-wise, with 8.7 billion yuan in its coffers at the end of September and no debt at the end of June.

Blue-collar workers, small markets in focus

While a slowing economy may have driven more workers to Kanzhun and Boss Zhipin, the company should also be credited for evolving its business strategy to meet the latest market needs and preparing accordingly. As layoffs disproportionately affect China’s legions of white- and so-called “gold-collar” workers, demand for blue-collar employees with special skills has been relatively strong.

Recognizing that trend, Boss Zhipin has been increasing its efforts in blue-collar recruitment for a while, including investment and building up resources to develop its presence in China’s smaller cities where such jobs are more common. That shift has been a major factor behind its strong performance in the past two years.

Kanzhun’s business grew sharply in 2023, banking heavily on strong growth in its user base and revenue, especially among the blue-collar industries in smaller cities we’ve mentioned. The company is also boosting its presence among small and medium-sized enterprises that tend to employ such workers.

At the same time, Kanzhun’s continued investment in technology and ongoing efforts to better understand its users’ needs allowed it to further consolidate its market-leading position by expanding its competitive advantages, Chairman and CEO Zhao Peng explained in the results.

Slowing profit growth

While Boss Zhipin has been a standout in China’s increasingly chilly economy, investors are taking a wait-and-see attitude on whether its growth, especially for its profits, can continue at the previous rapid rates of the past.

A closer look of the latest results shows that while revenue and user metrics posted strong gains, the company’s net profit rose at a far slow 9% to 464 million yuan in the third quarter. Its adjusted net profit, which typically excludes costs related to share-based compensation, was even slower, rising only 3.5% to 740 million yuan. Both growth rates are far slower than the quarter’s nearly 20% revenue growth, and were also significantly lower than the nearly doubling of its profit in the first half of the year.

The company said it expects to report fourth-quarter revenue of between 1.80 billion yuan and 1.81 billion yuan, up around 14% year-on-year. That appears to show that after several years of strong gains, including 32% growth in 2023 and 31% in the first half of this year, revenue increases may be starting to slow.

What’s more, the company’s growth also relies partly on revenue from investments unrelated to its core business. Such revenue from investments and interest totaled nearly 160 million yuan in the third quarter, and contributed 310 million yuan in the first half of this year. But such income is really secondary and unrelated to how well Kanzhun’s business is performing, especially headed into a cycle of falling interest rates.

Lukewarm reviews in Hong Kong

Kanzhun’s Hong Kong-listed shares currently trade at a trailing price-to-earnings (P/E) ratio of 31 times, and rival Tongdao Liepin (6100.HK) is at a similar level. But the smaller ManpowerGroup Greater China (2180.HK) trades at just 6 times, showing Kanzhun is still relatively highly valued.

Investment banks see Kanzhun as just a stable and slightly positive stock in the current climate. HSBC recently raised its profit forecast for the company from 2024 to 2026 by 3% to 4%, maintaining a “buy” rating, and increasing its target price from HK$66 to HK$68.

Citibank also raised its profit forecasts for 2024 to 2026 by 1% to 3% and boosted its target price for Kanzhun’s New York-listed shares from $16 to $16.50, maintaining a “buy” rating. CLSA also raised its target price for the company’s New York-listed shares from $16 to $17.50, and maintained its “outperform” rating. The slight upward adjustments in their target prices show that banks are taking a cautious view on potential upside for Kanzhun’s future growth and gains in its stock.

In fact, Kanzhun’s stock has never been too popular among Hong Kong investors. Its turnover has been relatively low, mostly in the thousands of shares per day, with only 100 shares trading hands one day this month on Dec. 5. That hardly seems fitting for a company with a HK$50 billion ($6.4 billion) market capitalization. Trading volumes are a bit better in New York, but still only in the hundreds of thousands of shares per day on average.

Kanzhun’s shares also seem to be losing some of their earlier star power as China’s economy slows. Its stock dropped slightly by 0.35% to HK$56.60, rather than rising, after the mostly upbeat third-quarter results were announced. Its shares are now down 35% from their high of HK$88.50 in May this year, showing investors may be starting to worry about its ability to maintain its strong growth going forward.

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