In the first quarter of this year, the amount of Hong Kong stock repurchases reached a record high. Wind data showed that it reached HK$49.61 billion, three times the HK$16.4 billion in the same period last year. Meanwhile, after 2022 and 2023, Tencent once again became the “Hong Kong Stock Repurchase King”, with a repurchase amount of 14.83 billion yuan in the first quarter.
Leading internet and financial companies continue to lead the Hong Kong share repurchase pattern. Companies such as HSBC Holdings, AIA, Meituan-W, and Xiaomi Group-W ranked second to fifth among all Hong Kong stock companies, with repurchase amounts of 9.24 billion, 7.5 billion, 3.69 billion and HK$3.19 billion, respectively.
Furthermore, in recent years, Hong Kong stock repurchases have been at a high level. The amount of Hong Kong stock repurchases for the full year of 2022 was HK$104.859 billion, compared to HK$125.935 billion in 2023. Regarding repurchase amounts that have repeatedly reached new highs, China Thai International said that many Hong Kong stock companies have grasped the best repurchase points and have stepped up their repurchase efforts during a period when valuations were low and sentiment was about to reach an inflection point.
Repurchases, dividends and stock prices resonate
Tencent, the “king of Hong Kong stock repurchases,” had a repurchase amount of HK$14.83 billion in the first quarter of this year. This figure is more than three times that of Tencent's repurchase amount of 4.63 billion yuan in the same period last year. In fact, Tencent's repurchase amount reached HK$49 billion in 2023, a record high in the past ten years, accounting for nearly 40% of the total repurchases of Hong Kong stocks in 2023. According to the annual report, Tencent repurchased a total of 150 million shares in 2023. These shares were all cancelled. Normally, Hong Kong listed companies will cancel their shares after they have bought back their shares. The reduction in share capital is conducive to increasing the intrinsic value of listed companies' shares.
It is worth noting that on March 20 this year, when Tencent released its annual report, it was announced that it would invest no less than HK$100 billion to repurchase shares in 2024, which is more than double the 2023 repurchase amount. In addition to doubling its buyback efforts, Tencent also stated that it will continue to increase shareholder returns. It plans to pay dividends of HK$3.4 per share in 2023, totaling about HK$32 billion, an increase of 42% over the previous year.
Repurchase combined with dividend strength, which also resonated with the 2023 results, led to a recent increase in Tencent's stock price. According to the data, from March 21 to April 5, Tencent's stock price rose for 6 days within 9 trading days, and the stock price returned to HK$310. The Goldman Sachs Research Report mentioned that Tencent's revenue for the fourth quarter of last year was roughly in line with expectations, and its net profit performance was 11% and 3% higher than the bank's and market expectations, respectively. At the same time, Tencent increased shareholder returns, including raising the annual dividend to HK$3.4 per share, and expects to at least double the share repurchase scale, with a “buy” rating, with a target price of HK$426.
The annual 100 billion repurchase plan outperforms the majority shareholders' holdings
Since late June 2022, Tencent's major shareholders, Prosus and Naspers announced a reduction in their holdings of Tencent shares, Tencent has maintained a massive repurchase rhythm, continuously topping the Hong Kong stock repurchase list in 2022 and 2023.
Since entering the second quarter of this year, Tencent's repurchase plan is still ongoing. Specifically, Tencent spent more than HK$1 billion to repurchase shares on April 2, 3, and 5, respectively. This also brought Tencent's total repurchases since this year to HK$17.84 billion. If Tencent continues to repurchase at its current scale and pace, the total amount of shares repurchased is expected to exceed the lower limit of the 100 billion annual repurchase plan previously announced by Tencent throughout 2024.
In terms of the majority shareholders' holdings reduction, according to the latest data, Prosus, the majority shareholder of Tencent, fell from 2,363 billion shares to 2,324 million shares between January 10 and April 2, 2024, reducing its holdings by 39 million shares. According to Tencent's latest closing price, this holdings reduction amount to approximately HK$12.09 billion. Meanwhile, according to publicly disclosed data from the Euronext Exchange, the total amount of Prosus's shares during the repurchase period in the first quarter of this year was 1.6 billion US dollars, or about HK$12.48 billion. The repurchase capital was obtained through the sale of Tencent shares, which also coincides with the reduction in Tencent's market value holdings in the first quarter.
So, can Tencent's buyback efforts offset the majority shareholders' reduction in holdings? In response, some Hong Kong stock analysts pointed out that if Prosus continues to repurchase and sell Tencent shares at the current scale and pace, the total amount of Prosus shares repurchased in 2024 is about 6.6 billion US dollars. Even if Tencent's total share repurchases this year is calculated at the lower limit of the promised repurchase amount of 12.8 billion US dollars, it is still close to about 2 times the total volume of Prosus shares sold.
“Prosus chose to use an open repurchase plan mechanism to gradually reduce the number of shares to be repurchased and Tencent shares sold for a corresponding amount on a daily basis. Compared with selling shares at once, this mechanism allows Prosus to reduce the number of Tencent shares sold.” According to the above sources, “Subject to Euronext regulations, the daily repurchase volume of listed stocks must not exceed 25% of their share trading volume on the same day. However, the impact of the decline in transaction volume is taking place. In the first quarter of this year, the average daily repurchase amount of Prosus dropped from 53 million US dollars in the first quarter of 2023 to 25.5 million US dollars, a decrease of 52% over the previous year. In the future, as Prosus continues to be repurchased according to the above mechanism, the public circulation and trading volume of its shares will continue to decline accordingly, which will further limit the number of repurchases it can make, thereby reducing demand for sales of Tencent shares.”
From this perspective, Tencent's repurchase amount in the first quarter was HK$14.83 billion, which may have been stronger than Prosus' reduction in Tencent's holdings during the same period, and the majority shareholders' decision to repurchase their own shares will reduce the pressure on Tencent to reduce their holdings in the future. Huachuang Securities pointed out that Tencent's 2024 100 billion repurchase plan is also expected to offset shareholders' financial pressure to reduce their holdings and have a positive impact on stock prices.
Since starting to reduce holdings, Prosus has made it clear many times that it is very confident about Tencent's long-term prospects. Prosus CEO Bob Van Dyke said in an interview last year: “We hope to continue to be a long-term shareholder of Tencent, and we are still very optimistic about the future of Tencent's assets and management team.”
Why is the emphasis on confidence while reducing holdings? The main reason behind this is related to the increase in the “content” of Prosus. Through continuous buybacks, Prosus' net asset discount rate has dropped from 46% when the repurchase program was launched to 35% at the end of March this year, and the net asset inversion situation has been significantly mitigated. Also, along with the repurchase and cancellation of shares, the “volume” of each Prosus share is currently getting higher and higher.
Editor/Jeffrey