Source: eCompany Author: Yu Shengliang.
Tencent has accumulated more than HK$52.3 billion (about RMB 48.6 billion) in share buybacks in the first half of this year, exceeding the full-year total for last year. The amount of buybacks accounted for more than 40% of the total buybacks of Hong Kong stocks during the same period, making it the largest listed company in terms of buyback amount. Among them, Tencent bought back HK$37.5 billion (about RMB 34.9 billion) in the second quarter, an increase of 150% compared to the first quarter. The daily buyback amount in the second quarter reached HK$987 million.
As of June 28, Tencent's total share capital was 9.3546 billion shares. The total share capital of Tencent has been fluctuating recently, mainly due to frequent exercise of stock option plans and occasional buyback cancellation. Although the frequency of buyback cancellations is not high, the number of cancellations is higher, so the total share capital at the end of the second quarter has decreased significantly.
After the buyback cancellation, Tencent's total share capital has steadily decreased in the past three years, with 961 million shares at the end of 2021, 957 million shares at the end of 2022, and 948 million shares at the end of 2023. Last year, Tencent bought back a total of 150 million shares, all of which have been canceled. Reducing share capital is beneficial to improving the intrinsic value of listed company stocks.
This is also an important reason for the long bull market in the U.S., as some listed companies have launched huge share buyback plans after becoming profitable.
In the first half of this year, Tencent increased its buyback efforts and its stock price rose during the same period, resulting in an increase in buyback costs. According to information disclosed by the Hong Kong Stock Exchange, Tencent's average buyback price in the second quarter was HK$361.8, an increase of nearly 25% compared to the first quarter's average buyback price of HK$290.6. On May 20, when the stock price rose after the first quarterly earnings report release, Tencent continued to buy back, with the highest buyback price reaching HK$399.8, close to the highest price of HK$400.2 during the same period.
As of the time of publication, Tencent's stock price was HK$378.2, up 2.44%, which is nearly the same as Tencent's average buyback price in the second quarter.
According to the rules of the Hong Kong Stock Exchange, repurchased shares are used for cancellation. Tencent's repurchased shares this year are also being canceled one after another.
Tencent's buyback efforts now far outweigh the amount that Prosus, its largest shareholder, is selling shares. Since June 2022, Prosus has sold Tencent shares to raise funds, as its stock price was significantly lower than its net asset value, and used the proceeds to repurchase its own stock. Prosus' continued reduction in holdings has put pressure on the stock price, and the market is concerned that the impact of the reduction may be too great.
But Tencent's total buyback amount in the second quarter was much larger than that in the first quarter, reaching 2.7 times the total amount sold by Prosus, thus reducing the latter's impact on secondary market liquidity. It can be said that Tencent's buyback efforts are far greater than the selling efforts of its largest shareholder in the market.
In May of this year, Tencent announced its first-quarter report, with revenue of RMB 159.5 billion, slightly surpassing the market estimate of RMB 158.81 billion, a year-on-year increase of 6%. Under non-IFRS, the net profit was RMB 50.265 billion, a year-on-year increase of 54%.
The quality of Tencent's first-quarter profits has improved significantly, with the gross margin of its financial technology and enterprise services, and online advertising businesses growing by more than 40% year-on-year for two consecutive quarters. Tencent's overall gross margin has also increased by more than 20% for four consecutive quarters, significantly improving its operating quality. The gross margin and operating profit growth exceeded the revenue growth, driven by WeChat video number and search advertising, small game platform service fees and video number merchant technology service fees.
Tencent's Chairman and CEO Ma Huateng announced the implementation of a share repurchase plan in 2024 exceeding HK$100 billion, which will increase dividends.
Tencent President Liu Chiping said on an institutional conference call after the first quarterly report was announced that Tencent will continue to execute its stock buyback plan according to the announced schedule. "The share price at the time we announced the buyback was very attractive. Although the share price has risen considerably recently, we believe it is still attractive."
The rise of the stock market is benefiting from large share buybacks by excellent companies.
In May of this year, Apple's board of directors approved a new $110 billion share buyback plan, the largest in U.S. history. From June 1, 2023 to June 1, 2024, Apple repurchased shares worth $83 billion.
Alphabet, Google's parent company, repurchased $63 billion of shares during the period, while Meta, Microsoft and Nvidia repurchased $25 billion, $20 billion and $17 billion of shares, respectively.
Goldman Sachs predicts that the total amount of share buybacks in the United States will exceed $1 trillion by 2025, driven by strong profit growth and low interest rates in the technology industry.
In addition to these tech giants, companies such as Boeing and McDonald's have also been committed to share buybacks over the long term.
Editor/Lambor