ChinaDaily Briefs

China: Tencent Holdings, Tsingtao Brewery Co Ltd H, Kuaishou Technology, China Communications Construction and more

In today’s briefing:

  • Tencent Holdings – Spanking
  • Tsingtao Brewery Placement – Fosun Is Back Again, Settling into a Pattern
  • Kuaishou (1024 HK): Positive Operating Data in 1Q21, But Not Enough
  • China Comm Const (1800 HK): Kick-Start a Rewarding Year
  • Tencent: Regulators Probe TME’s Previous Deals; The Battering Has Just Begun

Tencent Holdings – Spanking

By Thomas J. Monaco

*The Hits Keep Coming: On April 29, 2021, Reuters reported that SAMR is preparing a fine for Tencent Holdings (700.HK) [Tencent] as part of its antitrust review. Tencent’s fine is expected to be a minimum of CNY 10 bn or 2% of domestic sales. In addition, the report states that the investigation specifically focuses on music streaming. In addition to the fine, Tencent may have to give up its exclusive music rights and possibly dispose of Kuwo and Kugou; and

*Earnings To Decline, Capital Requirements To Increase: No doubt that Tencent will also follow Alibaba Group (BABA.US) [Alibaba] in their formation of a financial holding company. For Tencent, WeChat Pay and the broader lending/deposit taking business are likely to be reined-in. At CNY 38.5 bn, FinTech represents a growing 28.8% of revenue – and are key component of Tencent’s current and future results.  No matter what spin that Tencent wants to place on its other businesses, an FHC represents significant downside risks. Earnings will compress, as capital requirements increase.

Tsingtao Brewery Placement – Fosun Is Back Again, Settling into a Pattern

By Sumeet Singh

Fosun International (656 HK) aims to raise around US$300m via selling 1.8% of Tsingtao Brewery Co Ltd H (168 HK).

This is not the first selldown by Fosun, we covered the Dec 2020 selldown in Tsingtao Brewery Placement – Friday Evening Is Always a Good Time for a Beer, Maybe Not This One.

This will be the third selldown by Fosun in a little over six months, therefore, its hard to say that it will come as a surprise to the market.

Kuaishou (1024 HK): Positive Operating Data in 1Q21, But Not Enough

By Ming Lu

  • Kuaishou (KS)’s active users was stable after the Chinese New Year, while other apps’ user bases decreased.
  • KS’ time on site increased YoY in 1Q21.
  • We believe KS is riding on the boom of e-commerce live broadcasting.
  • We also believe Tencent’s game copyrights support KS’ game live broadcasting.
  • We conclude the stock downside has reduced.

Our previous coverage on Kuaishou:

China Comm Const (1800 HK): Kick-Start a Rewarding Year

By Osbert Tang, CFA

The 1Q21 result of China Communications Construction (1800 HK) (CCCC) should provide comfort to the market given it showed the sustained pace of earnings recovery. Recurring profit grew 87.5% YoY, or 13.3% versus 1Q19, driven by sharp surge in revenue and good YoY margin expansion on remarkable cost control performance.  

We believe CCCC has kick-started an encouraging FY21 – its 1Q21 profit already almost equals to the 1H20 profit. Adding to that is the enchanting new contract addition momentum in the quarter – up 80.3% YoY and 24.5% QoQ, providing good security and visibility for its earnings outlook. All these evidences are supportive to our relentless call that its 12-month forward PER of 2.7x and P/B of 0.2x are just too depressed.

Tencent: Regulators Probe TME’s Previous Deals; The Battering Has Just Begun

By Shifara Samsudeen, ACMA, CGMA

Reuters reported yesterday that the State Administration of Market Regulation (SAMR) in China is preparing a substantial fine for Tencent Holdings (700 HK)  as part of its ongoing antitrust probe.

The SAMR imposed a fine of RMB18.2bn on Alibaba for violating anti-monopoly rules and abusing its market dominant position on 10th April. Reuters states that the fine on Tencent will be less than that which was imposed on Alibaba, but that Tencent should expect a penalty of at least RMB10bn.

The antitrust investigation on Tencent is partly focused on its past acquisitions and investments while other areas include anticompetitive practices in some of its businesses with a particular focus on Tencent Music Entertainment (TME).

In our previous insight Tencent: Only Fintech Restructuring or Losing the Edge on WeChat User Data? , we highlighted that Tencent’s past M&A deals could attract regulatory scrutiny and in March 2021, the company was fined RMB500k for its investment in online education app Yuanfudao in 2018 for not seeking prior approval for the deal, which was in violation of the country’s anti-monopoly laws. The fines for not properly reporting past M&A deals are capped at RMB500k per case in China.

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