The SEEK Limited (ASX: SEK) share price is down more than 2% after impairing its Chinese Zhaopin investment.
SEEK is Australia’s leading employment and career website and business. Zhaopin describes itself as a leading career development platform in China.
SEEK impairs Zhaopin investment
The employment business has been going through a review of the carrying values of its assets as at 30 June 2024, in accordance with its accounting policies and the applicable accounting standards.
As a result of that process, SEEK will recognise a A$141 million total impairment charge related to its investment in Zhaopin in its FY24 result, comprising an impairment of the balance sheet value and the net consideration receivable.
In other words, SEEK is going to reduce how much its Zhaopin investment is worth on the balance sheet.
A A$120 million impairment of SEEK’s carrying value of its 23.5% equity-accounted stake in Zhaopin will be recognised in continuing operations.
A A$21 million impairment of the Zhaopin net consideration receivable will be recognised in its discontinued operations. This relates to the disposal of SEEK’s controlling interest in Zhaopin in May 2021, which is partially backed by recourse to equity. Therefore, the fair value of this amount has decreased due to the overall reduction in the valuation of Zhaopin.
After this impairment, SEEK’s carrying value of the equity accounted investment in Zhaopin will be A$433 million and the net proceeds outstanding will be A$75 million.
There were a few different factors that caused the impairment.
Why the impairment charge is being implemented
SEEK said the Chinese economy had previously been expected to return quickly broad-based growth after the easing on COVID restrictions in January 2023, as we saw in many other western countries.
Instead, SEEK said the recovery had been “modest” with “no clear visibility on sustained recovery.” That’s not helpful for the SEEK share price, of course.
In the Chinese employment market, blue-collar employment has “performed considerably better than the white-collar market in which Zhaopin primarily operates”.
Competition in the white-collar market has “intensified” in this period of lower than anticipated volumes.
Due to the above factors, Zhaopin’s revenue has declined, as have revenue and cash flow forecasts in the near to medium term.
Final thoughts on the SEEK share price
SEEK’s adjusted net profit after tax (NPAT) will be impacted by a lower share of earnings from Zhaopin of approximately A$5 million relative to FY23.
The SEEK share price has fallen 25% since the start of the year and it’s close to a 52-week low and a multi-year low.
It could be a contrarian opportunity at the current low level, but it could also fall further if the Australian economy were to weaken. Over the long-term, I’m not bullish on this business, particularly with the uncertainty of how AI could influence the employment market over time.
