Event: Tencent announced on December 23 that 457326671 Class A common shares of JD.com Group held by the company will be distributed in kind to eligible Tencent shareholders, on the basis of which one Class A common share of JD.com Group will be issued for every 21 shares held. The shares pay a special dividend similar to that of Tencent, which is 2.7%. After the completion of the distribution, Tencent's share of JD.com 's shares will be reduced from 17% to 2.3%, and will no longer be the largest shareholder. Tencent said that he will still be JD.com 's strategic partner in the future, and the company has no plans to further reduce its holdings of JD.com. Based on the share prices of the two companies on the 23rd, Tencent paid a special dividend equivalent to 2.7 per cent.
JD.com: the cooperation plan with Tencent is about to expire. In 2014, JD.com and Tencent signed a five-year cooperation plan to expand users by making use of Wechat's primary entrance resources and relying on Wechat's massive user pool, especially to tap new users in third-to sixth-tier cities. After the program expired in 2019, JD.com and Tencent renewed the three-year strategic cooperation agreement to continue to provide JD.com with prominent primary and secondary import resources on Wechat, and the two sides continued to carry out cooperation in various fields.
JD.com: whether to renew the contract next year is the key. We judge that the cost of traffic cooperation and JD.com will not change significantly before the expiration of the plan, and whether the contract will be renewed next year is the key. If the contract is not renewed, it may bring the risk of higher acquisition and retention costs for users, especially for users in low-line cities. In terms of equity, after the reduction of Tencent's shareholding ratio, as JD.com Group has not yet entered Hong Kong, domestic institutions or sold the allocated shares of JD.com Group, the trading mood is under pressure; but the increase in the overall proportion of tradable shares also helps to improve trading liquidity.
Share the results of investment and show ecological value. According to the 2020 financial report, Tencent's fair value in listed investment companies reached 1.2049 trillion yuan, and the investment involved a number of industries, including social networking, entertainment, education, workplace, medical care and so on. We believe that the distribution of JD.com shares by Tencent to share the results of investment with investors may cause the market to reevaluate the value of Tencent's investment business.
Investment advice: after Tencent's JD.com 's shareholding decreased from 17% to 2.3%, due to the decline in JD.com 's share of the profits of the joint venture company and the joint venture company in the past 22 years, we estimate that the net profit of Tencent 21max in 22 years will be reduced by 20% to 102.2 billion / 111.7 billion yuan. However, as Tencent is already at the bottom of his valuation in recent years, sharing the investment results will help investors to revalue Tencent's outbound investment, maintaining Tencent's "buy" rating and the target price of HK $610.
Risk tips: policy regulatory risks; international situation affects business cooperation; game business is not as expected.