Source: Yaya Hong Kong Stock Circle Author: Kyle In the first half of this year, statistics show that at least 180 Hong Kong stock companies have implemented share buybacks, with a total amount of HKD 121 billion, setting a new high in the same period of history. Especially in the Internet companies, almost every shareholder return program has been significantly improved, which can be said to have opened a new era of Internet shareholder returns. Among these companies, Tencent, the "North Star" of Hong Kong stocks, is undoubtedly the most prominent. In the first half of this year, it contributed more than 40% of the repurchase volume of the Hong Kong stock market, firmly occupying the seat of the "repurchase king" of the Hong Kong stock market. In the second quarter, Tencent's single-quarter repurchase amount reached HKD 37.5 billion, which doubled from the first quarter's HKD 14.8 billion. The repurchase average price increased from HKD 290.6 to HKD 361.8, an increase of nearly 25%. It is worth mentioning that Tencent's repurchase amount this year will exceed HKD 100 billion, doubling from last year's HKD 49 billion. What is the concept of a one trillion repurchase plan? This amount is the sum of Tencent's total repurchase amount in the past ten years, which proves the management's confidence in future development and attaches importance to the demands of investors. Through various means such as repurchase cancellation, dividends, and physical distribution, Tencent has truly given back to shareholders in the capital market while achieving performance growth. One, the significance of a trillion repurchases is actively emerging. Looking back at the past two years, since Tencent's major shareholder Prosus began to reduce its holdings, the stock price has been somewhat suppressed. In particular, there have been regular trading behaviors in the market when Hong Kong stocks perform poorly. For example, Hong Kong-listed companies have a "silent period for repurchase" in the month before the financial report is released, during which repurchase is not allowed. This caused great upward pressure on the stock price whenever Tencent entered the repurchase silent period before last year. As can be seen from the following data, of the five silent periods before the end of 2023, only Tencent's stock price in October-November 2022 rose, and in other times it fell. However, since the end of last year, Tencent's stock price has risen during two consecutive silent periods. Especially after the launch of the trillion-dollar repurchase plan this year, the repurchase volume has far exceeded the number of shares sold by major shareholders. Therefore, whether it is on normal trading days that can be repurchased, or during silent periods, the impact brought by the sale of major shareholders can be ignored, and this point is being formed by market consensus. For example, during the repurchase silent period from January to March this year, which happened to be the worst half-year Hong Kong stock market, the Hang Seng Index fell to 14,800 points. Tencent's performance during this period was significantly better than before. Even though the short selling ratio once reached 20%, the stock price did not fall, and the final interval increase was 6%. After the release of the better-than-expected 2023 annual report and the restart of the repurchase at the end of March, Tencent's stock price performed even better in the second quarter, with an increase of nearly 25%. During the same period, the Hang Seng Index and the Shanghai and Shenzhen Composite Indexes fell significantly, with gains of only 8% and 4%, respectively, while Tencent significantly outperformed the Hong Kong stock market with a gain of 25%. Behind this phenomenon, there is no doubt that the trillion-dollar repurchase plan, which has doubled from last year's amount, has played an important role. More importantly, after the repurchased shares are cancelled, Tencent's share capital has been declining for three consecutive years. Since 2021, Tencent's total share capital has decreased from 9.608 billion shares to 9.355 billion shares. In the first quarter of this year, Tencent issued ordinary shares decreased by 1.1% compared to the previous quarter, and the repurchased shares have also been gradually cancelled since this year. This trend will continue to increase earnings per share and further enhance shareholder value. (Caption) Starting in 2022, Tencent has increased its repurchase efforts. With the repurchase cancellation, the company's total share capital has gradually decreased.
Source: Yaya Hong Kong Stock Circle Author: Kyle The weather is good today The weather is good today.

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Among these companies, Tencent, the "North Star" of Hong Kong stocks, is undoubtedly the most prominent.

In the first half of this year,$TENCENT (00700.HK)$it contributed more than 40% of the repurchase volume of the Hong Kong stock market, firmly occupying the seat of the "repurchase king" of the Hong Kong stock market. In the second quarter, Tencent's single-quarter repurchase amount reached HKD 37.5 billion, which doubled from the first quarter's HKD 14.8 billion. The repurchase average price increased from HKD 290.6 to HKD 361.8, an increase of nearly 25%.

It is worth mentioning that Tencent's repurchase amount this year will exceed HKD 100 billion, doubling from last year's HKD 49 billion. What is the concept of a one trillion repurchase plan? This amount is the sum of Tencent's total repurchase amount in the past ten years, which proves the management's confidence in future development and attaches importance to the demands of investors.

Through various means such as repurchase cancellation, dividends, and physical distribution, Tencent has truly given back to shareholders in the capital market while achieving performance growth.

One, the significance of a trillion repurchases is actively emerging.

Looking back at the past two years, since Tencent's major shareholder Prosus began to reduce its holdings, the stock price has been somewhat suppressed. In particular, there have been regular trading behaviors in the market when Hong Kong stocks perform poorly.

For example, Hong Kong-listed companies have a "silent period for repurchase" in the month before the financial report is released, during which repurchase is not allowed. This caused great upward pressure on the stock price whenever Tencent entered the repurchase silent period before last year.

As can be seen from the following data, of the five silent periods before the end of 2023, only Tencent's stock price in October-November 2022 rose, and in other times it fell.

However, since the end of last year, Tencent's stock price has risen during two consecutive silent periods. Especially after the launch of the trillion-dollar repurchase plan this year, the repurchase volume has far exceeded the number of shares sold by major shareholders. Therefore, whether it is on normal trading days that can be repurchased, or during silent periods, the impact brought by the sale of major shareholders can be ignored, and this point is being formed by market consensus.

For example, during the repurchase silent period from January to March this year, which happened to be the worst half-year Hong Kong stock market, the Hang Seng Index fell to 14,800 points. Tencent's performance during this period was significantly better than before. Even though the short selling ratio once reached 20%, the stock price did not fall, and the final interval increase was 6%.

After the release of the better-than-expected 2023 annual report and the restart of the repurchase at the end of March, Tencent's stock price performed even better in the second quarter, with an increase of nearly 25%. During the same period, the Hang Seng Index and the Shanghai and Shenzhen Composite Indexes fell significantly, with gains of only 8% and 4%, respectively, while Tencent significantly outperformed the Hong Kong stock market with a gain of 25%.$Hang Seng TECH Index (800700.HK)$This phenomenon is undoubtedly due to the trillion-dollar repurchase plan, which has doubled from last year's amount.

More importantly, after the repurchased shares are cancelled, Tencent's share capital has been declining for three consecutive years.

Since 2021, Tencent's total share capital has decreased from 9.608 billion shares to 9.355 billion shares.

In the first quarter of this year, Tencent issued ordinary shares decreased by 1.1% compared to the previous quarter, and the repurchased shares have also been gradually cancelled since this year. This trend will continue to increase earnings per share and further enhance shareholder value. (Caption) Starting in 2022, Tencent has increased its repurchase efforts. With the repurchase cancellation, the company's total share capital has gradually decreased.

According to the statistics of the snowball big V "Warehouse General Jia Zuo", Tencent's weekly repurchase amount this year has exceeded the Prosus' shareholding reduction amount.

For example, during the week of June 17-21, Prosus reduced its holdings of Tencent by 2.5 million shares, while Tencent repurchased 13.08 million shares, and the shareholding reduction accounted for only 2.72% of the weekly volume, while the buyback amount exceeded the shareholding reduction amount. In fact, even during the buyback quiet period, the shareholding reduction by Prosus only accounts for about 2-5% of the weekly trading volume.

Overall, according to the publicly disclosed data of the pan-European exchange, Prosus repurchased its own shares for a total amount of 1.76 billion U.S. dollars in the second quarter of this year, slightly higher than the 1.6 billion U.S. dollars in the previous quarter. In the first half of the year, it repurchased a total of 3.36 billion U.S. dollars, all of which were obtained by selling Tencent shares.

Due to Tencent's repurchase total amount exceeding twice that of the previous quarter, the gap in the scale between it and Prosus' share selling continues to widen significantly, already 2.7 times the total selling amount of the major shareholders during the same period, and the latter's impact on the secondary market liquidity is almost negligible.

When Tencent's repurchase amount greatly exceeds that of major shareholders' shareholding reduction, investors' concerns also disappear, and Tencent has opened up greater imagination space for future valuations through buybacks.

Behind the strong cash flow, a new growth curve is emerging.

Through the above analysis, it can be seen that the impact of the current major shareholder Prosus' share reduction on Tencent's stock price has become negligible both in the market and in investors' minds.

In addition, some views believe that Tencent's future average growth rate may be around 8-10%, and worry that there is no new growth curve. However, looking at this year's first-quarter report, Tencent's new business also performed well, and there is no shortage of new growth engines for the future.

In the first quarter of this year, Tencent recorded revenue of 159.5 billion yuan, and the adjusted net profit was 50.265 billion yuan.

Among them, the advertising business revenue increased by a high 26% year-on-year to 26.5 billion yuan, significantly exceeding the market's expected 18%. This unexpected growth was mainly driven by Video Number. The Video Number traffic pool continues to expand, with user time increasing by 80% year-on-year in the first quarter, driving a doubling of e-commerce transaction volume and natural growth in commercial advertising.

In addition to Video Number, there are also new growth curves such as Mini Programs and SaaS, as well as revenue growth and gross margin improvement brought about by stock game monetization optimization, which jointly promote a new level of profit level and further increase future profit expectations.

In fact, U.S. technology stocks have experienced a phase from high growth to stable growth. During the period of high business growth, technology stocks make high investments, and high net income growth drives stock prices up. During the period of stable growth, technology companies use the disposable cash flow after deducting operating expenses to repay shareholders.

Although revenue growth is slowing down, the quality of earnings is improving.

And at this stage, although growth is not as fast as before, EPS is increasing every year. For example, Apple, in the past five years, has been able to push up its stock price through shareholder returns without very high growth rates.

Since 2014, Apple has repurchased more than 4% of its total share capital every year. From 2019 to 2023, Apple's average repurchase accounted for 4.4% of its total share capital.

If we look at the past ten years, Apple has repurchased more than $600 billion, reducing its total share capital by about 38%.

Although it may seem that repurchasing 4-5% each year has not had a very positive short-term effect on the stock price, the shareholder returns produced over time are quite remarkable. The successful example of shareholder returns by Apple is something that Tencent can learn from.

Going back to Tencent, completing the planned 100 billion share buyback could reduce the total share capital by about 3-3.5%. Assuming a daily repurchase amount of 1 billion yuan in the second half of the year, the repurchase of approximately 130 billion Hong Kong dollars can be achieved for the entire year, accounting for 4% of the total share capital.

According to the CICC report, Tencent's adjusted net profit forecast for this year is 201.8 billion yuan, and it is expected to reach 229.7 billion yuan next year. Assuming a repurchase of HKD 130 billion, the Payout Ratio is nearly 70%, comparable to the highly favored high-dividend operators, oil, and coal companies in the market.

Tencent outshines them all in terms of fast profit growth in high-quality "new buds" business and focused traditional business efficiency.

In the first quarter of this year, Tencent's gross profit, operating profit (Non-IFRS) and net profit (Non-IFRS) increased by 23%, 30%, and 54% year-on-year, respectively, continuously outpacing revenue growth. Among them, the net profit growth rate is significantly higher than the market consensus expectation, and the gross profit has maintained a rapid growth of more than 20% for four consecutive quarters, surpassing the level of 2021.

Market forecast predicts that Tencent's revenue growth will be about 8-9% this year. Through stock buyback and cancellation, EPS growth rate for the whole year can easily exceed 10%. In optimistic scenarios, it can reach higher levels. Driven by new businesses such as Video Number, Mini Programs, and SaaS, as well as growth opportunities in the AI era, there is no shortage of growth points based on the vast traffic pool.

In addition, Tencent has a total of 445.2 billion yuan in book cash and deposits, and the net cash flow from operations in 2023 has reached a historical new high of 222 billion yuan, laying a solid foundation for achieving long-term shareholder returns under the drive of high-quality fundamental growth.

III. Conclusion

After the major shareholders reduced their holdings in the past two years, Tencent has relieved the largest liquidity pressure in the secondary market. Driven by the moat of traditional businesses, new businesses such as Video Number, Mini Programs, and SaaS are growing rapidly, and the prospects are promising.

Based on the current high amount of buyback support, Tencent may not be the fastest growing period at the moment, but the huge dividends provide investors with a certain margin of safety. Under the aesthetics of capital markets that values cash flow, the investment certainty of Tencent, which has fallen by half from a high level, is increasing.

Editor / jayden