Source: Wall Street News
Author: Huang Yu

In 2024, $TENCENT (00700.HK)$ The total amount of the buyback has reached 112 billion Hong Kong dollars, which is 2.3 times the buyback amount of approximately 49.4 billion Hong Kong dollars in 2023, with a total repurchased share capital of 0.307 billion shares, and the average buyback price is about 364.5 Hong Kong dollars per share.

Since major shareholder Prosus began selling Tencent shares in June 2022, as of December 27, 2024, Tencent's total buyback has reached 187.6 billion Hong Kong dollars, surpassing the share sale amount of 174.5 billion Hong Kong dollars by Prosus during the same period, completely offsetting the impact of the major shareholder's sell-off.

Looking at the entire Hong Kong stock market, Tencent's buyback scale is also leading. Wind data shows that the total buyback amount in the Hong Kong stock market reached a record high of 265.7 billion Hong Kong dollars in 2024, a year-on-year increase of 109%. During the year, a total of 281 listed companies in Hong Kong implemented buybacks, of which Tencent's total buyback accounted for 42%, nearly supporting half of the Hong Kong stock buyback market.

In addition, since TENCENT adopted the "cancellation buyback" method (stocks are canceled after buyback, which helps to increase EPS), TENCENT's total share capital continues to decrease.

Data shows that as of December 31, 2024, TENCENT's total share capital was 9.22 billion shares, a decrease of 0.26 billion shares compared to the beginning of 2024. From the end of 2021 to now, TENCENT's total share capital has decreased by about 0.38 billion shares over three years, reaching the lowest level in a decade, while its EPS continues to rise, growing faster than revenue and operating profit.

According to the non-GAAP net income calculation for the third quarter of 2024, TENCENT's EPS for the quarter reached 6.475 yuan, a year-on-year increase of 36%, significantly exceeding the growth rate of operating profit during the same period.

Share buybacks are an important measure for TENCENT to boost market confidence and enhance shareholder returns.

In March last year, TENCENT first disclosed its annual buyback plan in the Earnings Reports, with a repurchase amount of no less than 100 billion HKD, which is equivalent to 60% of the free cash flow generated by TENCENT in 2022.

In terms of execution, TENCENT's repurchase amounts in each quarter of 2024 reached 14.835 billion HKD, 37.515 billion HKD, 35.913 billion HKD, and 23.739 billion HKD, totaling 112 billion HKD, with 129 transactions made throughout the year, averaging a daily repurchase amount of 0.868 billion HKD.

During the capital feast from late September to early October, TENCENT's buyback pace did not slow down.

On October 3, 4, and 7, the buyback amounts for TENCENT on the Hong Kong stock market were 0.251 billion HKD, 0.137 billion HKD, and 0.502 billion HKD respectively, with the stock price surpassing 482 HKD on October 7, reaching an annual high, and TENCENT's buyback amount on that day still exceeded 0.5 billion HKD, with the highest buyback price reaching 482 HKD/share.

Behind the large-scale share buyback is TENCENT's belief that its stock price is undervalued.

TENCENT's president, Liu Chiping, has stated that historically, TENCENT has consistently distributed cash dividends to Shareholders and regularly repurchased stocks when it believes its share price is undervalued. Especially today, when cash flow profits have reached historically high levels and continue to grow, management recommends increasing cash dividend distribution and plans to at least double the share buyback scale in 2024.

In the era of Internet Plus-Related, TENCENT is the absolute winner, firmly holding the position of "King of Technology Stocks" in China with its two stronghold businesses: social media and gaming. At the beginning of 2021, its stock price once approached 700 Hong Kong dollars per share, with a market cap exceeding 7 trillion yuan.

However, in the following three years, constrained by Internet Plus-Related regulation, sluggish business growth, and major shareholder shareholding reductions, TENCENT's stock price experienced significant fluctuations, with its market cap basically hovering around 3 trillion Hong Kong dollars, and the PE ratio dropped from over 30 times to less than 9 times at its lowest. The once leading figure in the Internet Plus-Related sector seems to be losing its imagination.

TENCENT's stock performance this year has left many investors feeling "encouraged." In 2024, TENCENT's stock price has risen over 41% cumulatively, and to date, its total market cap has reached approximately 3.83 trillion Hong Kong dollars, with the PE ratio (TTM) returning to 20 times.

This is driven not only by a hundred billion share buyback plan but also influenced by TENCENT's own stabilized and rising performance.

In the past year, driven by multiple "new seedling" businesses such as video accounts, mini-programs, AI large models, and Saas, TENCENT has shown strong growth momentum, and some evergreen games have been revitalized, reaching a high-quality growth model that collectively promotes profit margin growth.

Since the second half of 2022, TENCENT has achieved a new growth momentum of profit growth exceeding revenue growth for eight consecutive quarters.

According to the Earnings Reports, in the third quarter, TENCENT achieved revenue of 167.193 billion yuan, a year-on-year growth of 8%, meeting market expectations; Non-IFRS net income attributable to shareholders increased by 33% year-on-year to 59.813 billion yuan, setting a new historical high while exceeding market expectations.

Against this backdrop, TENCENT gained the confidence to "Buy Back". The Earnings Reports indicate that in the first three quarters of this year, TENCENT's free cash flow reached 51.9 billion, 40.4 billion, and 58.5 billion yuan respectively. As of September 30, TENCENT's end-of-period cash and cash equivalents balance reached 145.468 billion yuan.

In addition, in recent years, TENCENT has continuously increased its dividend distribution efforts. The 2024 midterm report shows that TENCENT has distributed a final dividend of 3.40 HKD per share (approximately equivalent to 31.7 billion HKD) for the year ending December 31, 2023, a year-on-year increase of about 39%.

Huaxi Analyst Zhao Lin believes that the high dividends and buyback plan demonstrate TENCENT's long-term confidence in its stock price.

After years of transformation, TENCENT has emerged from its low point, the major shareholder's shareholding reduction is coming to an end, the pressure on the stock price has diminished, and the horn for a new round of progress has already sounded.

Editor/rice