On the evening of March 20, Tencent threw out a share repurchase plan of up to 100 billion Hong Kong dollars, equivalent to 92.056 billion yuan at the exchange rate on March 21. Compared with the share repurchase plan of 1.2 billion yuan, which has been the highest since the beginning of the year, Tencent has made a big move.
It is worth noting that in the past three years, Tencent's buyback scale has increased significantly year by year, from 2.6 billion yuan in 2021 to 49 billion yuan in 2023, and doubled again in 2024.
Industry insiders said that compared with one-time and small-scale buybacks, Tencent's sustainable, large-proportion, and year-on-year buybacks can better demonstrate the company's full affirmation of its long-term investment value, help enhance shareholders' investment confidence, and benefit stock price growth.
However, some industry insiders have analyzed that behind the continuous large-scale repurchase, it needs to be supported by abundant self-owned capital flow, steady and good income generation, relatively mature business development, and a relatively flexible repurchase system, and most listed companies are currently difficult to have such strength. In the case of limited repurchase strength, if the stock price valuation is low, a small-scale repurchase can also help to boost the stock price, and there is no need to force the repurchase volume.
Tencent dumped a 100 billion Hong Kong dollar repurchase plan
On the evening of March 20, Tencent disclosed its 2023 annual report, with annual revenue of 609.015 billion yuan, a year-on-year increase of 10%, and net profit (Non-IFRS) of 157.688 billion yuan, a year-on-year increase of 36%. Under the improvement in revenue generation, Tencent threw out a large buyback - the scale of up to HK$100 billion, compared with the HK$49 billion buyback plan in the same period last year.
According to Tencent's announcements over the years, its repurchase scale has repeatedly reached new highs in the past three years. HK$2.6 billion in 2021, HK$33.8 billion in 2022, HK$49 billion in 2023 and HK$100 billion in 2024.
"This is the repurchase model that mature capital markets and mature enterprises should have, and the repurchase intensity is directly proportional to the company's income generation and long-term investment value, and inversely proportional to the current stock price. An industry insider told reporters. However, in his view, share repurchases need to be done within their means, and Tencent needs to be supported by four major conditions behind its continued high proportion of repurchases, which most listed companies may not have at present.
First, there is ample cash flow. On the one hand, this depends on the existing reserves of the enterprise, and on the other hand, on the short-term income generation of the enterprise. Tencent, for example, has a high level of revenue. Taking the 2023 performance as an example, net profit and operating profit have grown at a high rate for four consecutive quarters, of which the growth rate in the fourth quarter is as high as 44% and 35%. This allows it to have more adequate repurchase funds.
Secondly, it is in a relatively mature stage of development. As an Internet leader, Tencent, founded in 1998, has a mature business model and stable development prospects, which makes its investment demand based on the company's business innovation relatively limited, so the company's development will not be affected by large-scale buybacks.
On the contrary, Pinduoduo in 2015 was in a period of rapid business expansion, and the demand for capital investment was large. On March 21, at Pinduoduo's Q4 performance meeting, Liu Jun, vice president of Pinduoduo, said in response to "whether to consider repurchase dividends" that each company is at a different stage of development, and for Pinduoduo, it is still in the investment stage, and the current focus is still on investing in long-term value.
Regarding the differentiated choice of Tencent and Pinduoduo, interviewees said, "Share buybacks demonstrate the company's confidence in the value of its long-term investment, which is a good thing for boosting the stock price." However, whether to repurchase and the extent of the repurchase need to depend on the specific situation of the company. If the company is in a period of rapid business expansion, it may be more meaningful to use the funds for business development than share repurchases, but the funds invested in business development need to be used in practice, and blind cross-border expansion may not be beneficial. ”
A-share buybacks continue to heat up
Compared with Tencent's large-scale buybacks, the scale of single buybacks of A-share listed companies is relatively limited.
The reporter's comprehensive research and interview found that compared with Hong Kong stocks, the characteristics of A-share repurchase are: the amount of single repurchase is relatively low, but the number of listed companies that carry out repurchase is relatively large. Wind data shows that during the period of March 1 ~ March 20, there were as many as 127 listed companies with new share repurchase plans for A-shares.
Judging from the amount of repurchase announced, 33 of them are less than 10 million yuan, accounting for 25.98%, and only 35 have a scale of more than 100 million yuan, accounting for 27.56%. The largest repurchase is WuXi AppTec, with a scale of 1 billion yuan, followed by Hisense Video and LONGi Green Energy, with 753 million yuan and 600 million yuan respectively.
Extending the long term, comparing the actual repurchase of A-share and Hong Kong-listed companies between January 1 ~ March 20, it can be seen that in terms of the total amount of repurchases, A-shares are better than Hong Kong stocks, with a total repurchase amount of 55.505 billion yuan and 40.393 billion yuan for Hong Kong stocks.
However, judging from the repurchase amount of a single listed company, Hong Kong stocks performed better.
On the one hand, the 55.505 billion yuan of A-shares was jointly carried out by 1,203 listed companies, with an average repurchase of 46 million yuan each, while the 40.393 billion yuan of Hong Kong stocks only involved 115 listed companies, with an average repurchase of 351 million yuan each.
On the other hand, from the perspective of the listed companies with the largest repurchase scale, San'an Optoelectronics, the highest A-share company, repurchased a total of 1.426 billion yuan, which can only rank seventh in Hong Kong stocks. There are five Hong Kong stock repurchases with a scale of more than 3 billion yuan, and the first and second runners-up, Tencent Holdings, HSBC Holdings, and AIA have repurchased as much as 9.825 billion yuan, 7.652 billion yuan and 6.434 billion yuan respectively.
"Objectively speaking, compared with developed capital markets, the current repurchase intensity of A-shares is relatively limited. Zhao Jian, president of Atlantis Financial Research Institute, told reporters. He analyzed, logically, when the stock price of a listed company is in the bottom area, the listed company should take the initiative to repurchase shares in the case of optimism about its own long-term investment value, if it is not repurchased, it may mean that the listed company believes that its stock price is still adjusting, which is easy to make investors question the value of its long-term investment.
Judging from the current situation of A-shares, some companies have the dilemma of being unable to repurchase. On the one hand, some listed companies, mainly private enterprises, have limited cash flow and lack repurchase funds; on the other hand, some listed companies represented by central state-owned enterprises have relatively complex share repurchase procedures and are constrained by many factors, and it is not that the companies themselves can cash in in time if they want to repurchase. At the same time, China's capital market has previously placed more emphasis on the financing function, and under the financing concept, some executives of listed companies lack the awareness of buyback.
However, it is worth noting that under the regulatory encouragement of share repurchases, the repurchase efforts of listed companies are significantly strengthened. Since July 2023, the repurchase intensity of listed companies has increased month by month. From the point of view of the repurchase amount, it was 6.117 billion yuan in July, and then continued to grow at a rate of more than 1 billion yuan per month, breaking through the 10 billion yuan mark to 11.764 billion yuan for the first time in November, and breaking through 20 billion yuan again in February this year to hit a new high of 26.501 billion yuan in a single month, and the repurchase in March slowed down slightly compared with February, but the repurchase amount in the month ended March 20 also reached 13.881 billion yuan, doubling over the same period last year.
In a series of new policies on the capital market issued by the China Securities Regulatory Commission on March 15, it has been repeatedly mentioned that promoting high-quality listed companies to actively carry out share repurchases has been mentioned. Among them, the "Opinions on Strengthening the Supervision of Listed Companies (Trial)" sets up a special section to clearly enhance the effect of share repurchase and regulatory binding. The special section specifically stipulates that high-quality listed companies should be encouraged to actively carry out share repurchases, guide more companies to repurchase and deregister, and enhance the effect of stabilizing the market; major index constituent companies are required to clarify the corresponding arrangements such as repurchase and increase in holdings in the event of a short-term sharp decline in stock prices; and the companies that have not increased their holdings or repurchased are required to explain in their periodic reports relevant measures to improve the company's investment value.
Interviewees expect that under the further advocacy of supervision, the repurchase of listed companies will be further increased in the next step, and the scale of A-share repurchase is expected to exceed 100 billion yuan in 2024.
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