Online growth prospects help Japan's Recruit shine in market debut

October 16
2:06 AM 2014

Staffing firm Recruit Holdings Co Ltd (6098.T) surged in its market debut in Tokyo on Thursday, with investors leaping at a rare opportunity to grab part of a big Japanese company with strong online growth prospects.

The 10 percent climb in its share price came amid a decline for the overall market and snapped a string of weak high-profile listings in Tokyo this year. It values the company at around $18 billion - on par with Sony Corp (6758.T) and more than Switzerland's Adecco (ADEN.VX), the world's biggest staffing firm by sales.

Particularly appealing for investors is Recruit's wide range of businesses including magazines and its aggressive expansion both overseas and into web-based products like real estate listings and second-hand car sales.

"It has been able to meld its traditional publishing business with its web-based products well and that implies high prospects for growth," said Masayuki Doshida, a senior market analyst at Rakuten Securities.

Doshida cited travel magazine Jalan as one such example. It now has its own website offering customers the ability to book travel tickets, hotels and rent cars across Japan.

A tightening labor market as Japan's population rapidly ages and a shift by companies towards using more temporary workers is also expected to work in Recruit's favor.


In afternoon trade, its shares were trading at 3,405 yen compared with an IPO price of 3,100 yen.

Its IPO, the second-largest in Japan this year, raised roughly $2 billion, with about half of those funds going to the company for further acquisitions and half to existing shareholders.

With ambitions to become the world's biggest staffing firm by 2020, Recruit has in recent years snapped up rivals such as U.S. staffing service CSI, Advantage Resourcing and Staffmark Holdings as well as

It has over 100 human resources affiliates, roughly evenly split between Japan and overseas.

But the global staffing market is highly fragmented and in terms of just staffing-related revenue, Recruit ranked no. 5 in the world in 2012 with a 1.5 percent market share. That compares to 6.5 percent for Adecco, according to Staffing Industry Analysts.

The bigger market cap for Recruit may lie in its higher profit margins. Its margin forearnings before interest, taxes, depreciation and amortization in the last financial year was 15 percent, compared to around 5 percent for Adecco.

Founded in 1960 by Hiromasa Ezoe, a Tokyo University student, Recruit grew rapidly but stumbled in the late 1980s, when it became the center of a famous shares-for-favors corruption scandal that brought down the Japanese government.

Recruit made 1.2 trillion yen ($11 billion) in operating revenue in the past financial year, an increase of 13.6 percent, helped by its unit and a favorable exchange rate. But net income declined 9 percent as operating expenses increased.

Weak listings on the Tokyo bourse this year included a $3 billion offering by smartphone screen maker Japan Display (6740.T) that suffered as investors fretted about falling product prices and its ability to compete in Asia.

A $700 million IPO by restaurant chain Skylark Co (3197.T) this month also received a lukewarm welcome as its longer-term growth prospects are less than clear and the listing was seen primarily as an opportunity for owner Bain Capital to cash out.

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