Tencent shares buoyant despite new regulatory concerns

• Tencent Holdings Ltd (HKG: 0700) share price closes 4% higher for the week
• Earlier this week, it was reported that China’s largest housing broker KE Holdings Inc, which Tencent backs, is under investigation by Chinese anti-competition authorities
• Last week, Tencent saw first quarter profit beat analyst estimates
• The group said it will ‘proactively increase its rate of investment in new opportunities by investing a portion of its incremental profits for 2021’
• Buy and sell Tencent stocks with an IG account

Tencent stock price: What’s the latest?

Tencent Holdings shares rallied over 4% this week, despite fresh concerns that Chinese regulators are starting to clamp down on financial technology companies again.

Earlier this week, it was reported that the State Administration for Market Regulation (SAMR) had begun a formal investigation into Tencent-backed KE Holdings, the country’s largest housing brokerage firm.

SAMR has allegedly been looking into whether KE Holdings has been coercing property developers to list their projects only on its platforms, in a tactic referred to as ‘choose one from two’.

KE Holdings was first warned by SAMR last month, along with a dozen other ‘platform’ companies that match buyers and sellers, about any exploitation of customers and market dominance.

Following the report, KE’s US stocks fell nearly 7%.

Being that Tencent is KE’s largest financial backer, this latest anti-competition probe is another bump on the road, especially as the SAMR is already reportedly planning to impose a fine of at least US$1.5 billion on the internet giant in the foreseeable future.

Last month, Alibaba Group was slapped with a hefty US$2.8 billion fine after it was found to have engaged in practices that prevented merchants from using other e-commerce platforms since 2015.

Tencent to pump back profits into new investments

For now, things are still looking up for Tencent, which last week reported a 65% increase in profit for the first quarter of 2021.

The world’s largest gaming company recorded a profit attributable to equity holders of 47.8 billion yuan (US$7.3 billion) for the three months ended 31 March 2021, beating analyst estimates published by Refinitiv of 35.45 billion yuan.

Basic earnings per share came in at 5.02 yuan (US$0.79) - up 64.6% from a year ago, while diluted earnings per share was 4.917 yuan (US$0.77) - up 64% year-on-year.

Mr. Ma Huateng, Chairman and CEO of Tencent, said the company sees ‘expanding opportunities in the various verticals’ where it currently operates, thanks to technology innovation and increasing acceptance of digital solutions among users and businesses.

‘As a result, we are stepping up our investment in areas including business services and enterprise software, high-production-value games, and short-form video,’ he said. Incremental investments will be pumped into these areas.

Additionally, Tencent will also proactively increase its rate of investment in new opportunities by investing a portion of its incremental profits for 2021. It is confident that this approach ‘will deliver high returns in the long run’.

Lastly, the conglomerate will also invest an initial capital of 50 billion yuan into a new Sustainable Social Value Organisation, to be funded by its investment gains, into areas including basic science, education innovation, rural revitalisation and carbon neutrality.

Tencent shares closed at HK$601.50 each on Friday (28 May 2021).

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