Source: China Securities, Author: Li Li.

On June 11th, Meituan announced on the HKEx that its board of directors has decided to repurchase up to $2 billion of Meituan's class B ordinary shares on the open market. Out of bullish optimism for the company's prospects and stable stock price, Meituan has carried out stock repurchases several times since the beginning of the year, and the total amount of repurchases has reached close to HKD 8 billion.

In addition, companies such as Tencent Holdings, HSBC Holdings, and AIA Group have also spent huge amounts of money on buybacks this year, with repurchase amounts of HKD 38.307 billion, HKD 17.37 billion, and HKD 10.666 billion, respectively. As a whole, according to statistics, as of June 4th, a total of 173 Hong Kong-listed companies have implemented repurchases this year, with a total repurchase amount of HKD 96.988 billion in 2024.

Meituan has repurchased nearly HKD 8 billion this year.

On June 11th, Meituan announced on the HKEx that its board of directors has decided to repurchase up to $2 billion (approximately RMB 14.5 billion) of the company's class B ordinary shares on the open market. This move aims to demonstrate the company's confidence in its business prospects and is expected to create value for the company and its shareholders.

In addition, Meituan also stated that the board of directors believes that the company's existing financial resources are sufficient to support the repurchase plan while maintaining a sound financial condition, and that repurchases will be carried out according to market conditions and relevant regulations. There is no guarantee of specific repurchase timing, quantity or price.

On January 10th of this year, Meituan conducted its first share repurchase since going public, spending nearly HKD 400 million to repurchase a total of 5.63 million class B shares. Meituan has carried out several share repurchases since then, most recently repurchasing 5.3796 million shares through block trades on June 7th at a repurchase amount of HKD 600 million. According to statistics, as of June 11th, Meituan has repurchased approximately 87.8879 million shares since the beginning of the year, with a repurchase amount of approximately HKD 7.774 billion.

On June 6th, Meituan released its Q1 financial report for 2024, which showed that the company's revenue for Q1 was RMB 73.276 billion, a year-on-year increase of 25.0%. Among them, the core local business revenue was RMB 54.626 billion, a year-on-year increase of 27.4%. The revenue performance is in line with expectations. Meanwhile, the company achieved a net income attributable to shareholders of RMB 5.369 billion, a year-on-year increase of 59.9%. Several brokerage research institutions have given positive evaluations on the profitability surpassing expectations.

In the secondary market, Meituan-W has risen rapidly since February, under the situation of rebounding after bottoming in the Hong Kong stock market, then fell back slightly starting in mid-May. As of the close of June 11th, Meituan-W surged by 4.44%, with a year-to-date increase of 40.78%, and a market value of HKD 718.9 billion.

Hong Kong stock market sets off a wave of buybacks.

At the same time, the Hong Kong stock market is stirring up a wave of buybacks by listed companies.

For example, on June 11th alone, there were four listed companies in the Hong Kong stock market that disclosed repurchase plans or actions, in addition to Meituan, there were Pacific Basin Shipping, Cogobuy, and Samsonite.

According to statistics, as of June 4th, a total of 173 Hong Kong-listed companies have implemented repurchases this year, an increase of 67 compared to the same period last year; with a total repurchase amount of HKD 96.988 billion, an increase of 163% compared to the same period last year.

Specifically, Tencent Holdings, HSBC Holdings, AIA Group, Meituan-W, and Dongyue Group ranked in the top five in terms of repurchase amount, with HKD 38.307 billion, HKD 17.37 billion, HKD 10.666 billion, HKD 7.774 billion, and HKD 3.699 billion, respectively. Among them, Tencent Holdings ranked first with a repurchase amount of HKD 38.307 billion. Since the beginning of the year, Tencent Holdings has repurchased for 41 trading days, with repurchases exceeding HKD 1 billion for 34 times.

Among the 173 Hong Kong-listed companies that implemented repurchases this year, 34 have accumulated repurchase amounts exceeding HKD 100 million, and 12 have exceeded HKD 1 billion. Among them, Kuaishou, Hang Seng Bank and other companies have spent more than HKD 1.4 billion on repurchases. Analysts believe that the repurchase boom of listed companies usually means that the overall market is undervalued, and listed companies believe that their stock prices are far lower than their intrinsic values.

At the policy level, HKEx is continuously reforming the repurchase mechanism to facilitate Hong Kong-listed companies' repurchases.

In October of last year, the Hong Kong Stock Exchange issued the "Guidance for Listed Issuers to Conduct Automatic Share Repurchase Programs", which proposes that qualified listed corporations can repurchase shares through automatic share repurchase programs during the silent period of share repurchases, provided that they apply for exemption status from the Hong Kong Stock Exchange.

In April of this year, the Hong Kong Stock Exchange revised the "Listing Rules" and introduced a new mechanism for treasury stock, which allows listed issuers to hold repurchased shares in the form of treasury stock, and this will take effect on June 11th. The Hong Kong Stock Exchange stated that listed corporations can use treasury stock to stabilize their stock prices. When the stock price is low, the issuer can repurchase company stocks and convert them into treasury stock, sending a signal to the market that their shares are undervalued and boosting market confidence.

Institutional professionals say that a series of reforms are conducive to enhancing the enthusiasm and flexibility of Hong Kong stock market listed corporations to repurchase shares, and may further enhance the overall shareholder return level of Hong Kong stock market, therefore the repurchase wave in the Hong Kong stock market is expected to continue in the future.

What is the future trend of the Hong Kong stock market?

After experiencing a round of upward trend, the Hong Kong stock market has continued its adjustment since the beginning of this year, and experienced a pullback on June 1st. As of June 11th, the Hang Seng index and the Hang Seng Tech index fell by 1.04% and 0.45%, respectively.

Geoffrey Ji, the manager of Penghua CSI HK GEM ETF Fund, said that since April, the Hong Kong stock market has entered a consolidation phase after a round of rising trend. "At present, this round of adjustment is mainly a technical adjustment, a correction to the previous rapid rise." Ji Jun-kai analyzed that the trend of the Hong Kong stock market's fundamentals towards improvement has not changed in the medium and long term."From the financial data of Hong Kong Internet companies in the first quarter, the prosperity of Hong Kong's Internet leading enterprises is ahead of the macro economy recovery".

Fan Li-jin, the manager of Guangfa Hong Kong Stock Connect High-Quality Growth Fund, believes that the rise in the Hong Kong stock market since April is mainly due to the repair of risk appetite that has been oversold since the fourth quarter of 2023, the improvement of corporate profit growth driven by the stabilization and recovery of domestic economy, which may become the core driving force for the rise of the Hong Kong stock market. He will focus on three types of "high-quality growth" investment opportunities in the Hong Kong stock market:

Firstly, the unremitting pursuit of Chinese consumers for higher quality products and services makes consumption upgrading still a deterministic trend in the medium to long term, and many industry leading companies related to domestic demand are expected to continue to grow in the opportunity of increased penetration and structural transformation. In areas such as mobile Internet, catering, beauty and skin care, and sports apparel, such cases can be seen continuously.

Secondly, with the further enhancement of the competitiveness of Chinese enterprises globally, "going abroad" has become an inevitable choice, and the broad overseas market is expected to provide new impetus for the growth of Chinese enterprises. From the financial statements of listed companies, leading companies in industries such as e-commerce, local life, electric vehicles, innovative drugs, and industrial machinery have cashed in on the dividend of "going abroad" in recent years.

Thirdly, the institutional reform of the Hong Kong stock market provides differential growth alpha for mainland investors. In December 2022, regulatory authorities agreed to expand the scope of interconnection stock targets; starting in March of the following year, the first batch of foreign companies were included in the investable pool of Hong Kong Stock Connect. As the investable targets of Hong Kong Stock Connect continue to grow, mainland investors can more conveniently enjoy more differential growth dividends.

Regarding the Internet sector in particular, Feng Chen-cheng, the manager of Hong Kong Internet ETF Fund (513770), believes that in terms of industry news, the profitability of Hong Kong's Internet companies in the first quarter is eye-catching (some even exceeded the 20-year high point), the short video enters the accelerated monetization and profit-making period, and as the summer approaches, the launch of key games will help to continuously improve industry prosperity and increase the growth rate of the game market, while other consumer Internet companies benefit from going abroad and an improved competitive landscape.

The fund believes that leading Internet companies have the characteristics of high elastic stock prices, performance exceeding expectations and high shareholder returns. When the overall return of the Hong Kong stock market is improved, they are more sensitive to it. Hong Kong's Internet may still be worth overweight, and attention should be paid to the Friday non-farm payrolls data release in the US and the signal of China's consumption data.

Editor/Lambor