Tencent shares slump after biggest shareholder trims stake

• Tencent Holdings Ltd (HKG: 0700) share price dips to HK$619 per share
• Its largest shareholder, Prosus, sold a 2% stake for US$14.6 billion
• The Chinese company ‘respects and understands’ the stake sale
• Analysts had an average 12-month target price of HK$787.22
• Buy and sell Tencent shares with an IG account

Tencent shares lose ground

Shares of gaming and social media heavyweight Tencent inched down by another 0.2% to HK$619 as of 13:36 SGT on Friday (09 April 2021).

The Hong Kong-listed counter had sunk 1.5% to close at HK$620 on Thursday, after its top shareholder announced it had sold off some Tencent shares at a discount.

Out of 68 analysts, 63 recommended ‘buy’ on Tencent and five said to ‘hold’. Their average 12-month target price stood at HK$787.22 as of Friday, Bloomberg data showed.

In the past week, research teams from Nomura, Haitong International, Daiwa, Bernstein, Credit Suisse gave ‘buy’ or ‘outperform’ calls, targeting HK$780, HK$966, HK$870, HK$880, and HK$800 respectively.

CICC, meanwhile, rated the stock ‘neutral’ with a HK$682 target on Thursday.

Why did Tencent’s major investor cut its holdings?

Amsterdam-listed technology investor Prosus NV on Thursday said it sold a 2% stake in Tencent overnight for about US$14.6 billion.

Prosus sold close to 192 million shares for HK$595 each, trimming its shareholding to 28.9% but remaining Tencent’s single largest shareholder. The deal price was a 5.5% discount to the Wednesday closing price of HK$692.50 per share for Tencent’s stock.

Koos Bekker, chairman of Prosus, said the Netherlands-based company needs to ‘fund continued growth in our core business lines and emerging sectors’, even though its belief in Tencent and the latter’s management team is ‘steadfast’.

Prosus, a division of South African investment firm Naspers, plans to use the proceeds to boost its war chest for new e-commerce deals. It already owns interests in fintech and digital payments businesses as well as food-delivery platforms.

Tencent’s chairman Pony Ma noted that the Shenzhen-based company ‘respects and understands’ the investor’s decision to reduce its stake.

Prosus pledged that it will not decrease its shareholding further for at least the next three years. Bloomberg Intelligence analysts noted that this commitment should allay Tencent investors’ fears of a selldown in the Hong Kong-listed firm’s shares.

What will drive Tencent’s long-term growth?

Deutsche Bank analysts wrote that Tencent, which owns China’s biggest messaging app WeChat, has shown it is able ‘to continuously deliver sustainable growth across all of its three business segments’.

Maintaining a ‘buy’ call with a higher target of HK$705, they remained ‘very confident’ in its growth momentum, supported by upside catalysts such as its upcoming League of Legends and Dungeon & Fighter mobile games.

There are also monetisation upsides from the ‘sharply increasing’ popularity of video accounts and mini programmes, Deutsche Bank added.

Meanwhile, Ampere Analysis’ Chundi Zhang said Tencent is investing in competitive gaming or e-sports for the long haul, as it ‘breaks the boundaries between different businesses, from licensing to sponsorships and ticket sales’.

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