Kanzhun Limited (BZ), a leading Chinese employment platform, is poised for potential near-term gains. Analysts expect the company to deliver above-expectations first-quarter 2024 financial results, driven by favorable market dynamics. However, the long-term outlook for China’s employment market remains uncertain due to a shrinking labor force and the increasing adoption of robots and automation.
Near-Term Tailwinds
Kanzhun’s first-quarter results, expected to be released in May, could benefit from several factors. The company’s recent investor meeting indicated that competitors have not made significant progress in product development or scale. Additionally, Kanzhun sees an opportunity to increase both job post pricing and conversion of free job posts to paid posts. Favorable employment numbers in China, with the surveyed urban unemployment rate decreasing to 5.2% in Q1 2024, further support the company’s near-term performance.
Long-Term Concerns
Despite the positive near-term outlook, Kanzhun faces long-term challenges related to the Chinese employment market. China’s labor force is shrinking due to an aging population, while the growing use of robots and automation will likely reduce recruitment demand in the future. The working-age population in China has decreased from 62% in 2022 to 61.3% in 2023, and it is projected that 300 million people aged 50 to 60 will retire in the coming decade. Additionally, China’s rapid adoption of robots and automation is expected to further reduce demand for labor.
Overseas Ambitions and Valuation
Kanzhun has expressed interest in expanding its operations overseas, potentially mitigating some of the long-term challenges in China. However, this expansion is expected to take time. Currently, BZ’s valuation appears reasonable, with a PEG ratio of close to 1. The stock trades at 22.4 times consensus next twelve months’ normalized P/E, while the company’s consensus FY 2023-2027 normalized EPS CAGR forecast is +22.0%.
Conclusion
Given the favorable near-term prospects but long-term concerns, a ‘Hold’ rating is appropriate for Kanzhun. The potential for solid first-quarter results should provide some support in the short term. However, the company’s long-term growth prospects remain uncertain due to challenges in the Chinese employment market. Investors are advised to monitor Kanzhun’s progress closely and assess the long-term impact of the shrinking labor force and automation on its business.
