原创首发 | 金角财经（ID: F-Jinjiao)
Author | Kakuye
The wave of buybacks is sweeping China's capital market.
According to the data, in the first half of this year, a total of 1,645 A-share listed companies implemented repurchases, with a total repurchase amount of 99.284 billion yuan, and the total repurchase amount of listed companies on the Hong Kong Stock Exchange reached 121 billion Hong Kong dollars, a record high for the same period in history.
However, in the vigorous tide of repurchases, some listed companies are shouting slogans, but the repurchase progress is very slow, and even some A-share companies have drilled regulatory loopholes and staged a disguised reduction of holdings with the left hand and the right hand.
Who buys back with real money and writes off in real money has become the most concerned issue for investors.
Judging from the progress of the implementation of A-share repurchases, CATL, Baosteel and Jiu'an Medical have the highest repurchase amounts, repurchasing 2.446 billion yuan, 2.236 billion yuan and 1.18 billion yuan respectively.
But the real buyback king was born in Hong Kong stocks. In the second quarter of this year alone, Tencent Holdings' repurchase amount reached HK$37.5 billion, plus HK$14.8 billion repurchased in the first quarter, and Tencent Holdings has repurchased HK$52.3 billion, or about 48.7 billion yuan, in the first half of the year.
According to the Hong Kong Stock Exchange's rules on repurchase and cancellation, Tencent will repurchase a total of about 150 million shares in 2023, and all of these shares will be cancelled. Since the beginning of this year, the repurchased shares are also being cancelled one after another.
What is more noteworthy is that Tencent's large-scale buybacks continue to exceed the scale of major shareholder Prosus's holdings in the same period, and the liquidity pressure caused by the latter has almost disappeared.
Thinking about it from another angle, if it is only to deal with the reduction of major shareholders, Tencent does not need to continue to increase the repurchase range, under the name of "Teng billion", Tencent is optimistic about its future prospects.
Firmly sit on the "repurchase king"
The latest disclosed data for the second quarter shows that Tencent's buybacks continue to increase.
First of all, it has become daily to repurchase 1 billion in a single day.
According to information from the Hong Kong Stock Exchange, in the second quarter of this year, excluding sensitive window periods such as financial report information disclosure, Tencent actively made 38 purchases on each repurchase date, with a total of more than 100 million shares repurchased, of which 37 days repurchased more than HK $1 billion.
As early as 2022, many investors found that Tencent's repurchase amount increased, from 200 million to 300 million, and called Tencent to change its name to "Teng 300 million" and invest 300 million per day.
Now in just two years, Tencent's daily fixed investment in its own amount has more than tripled, from "300 million" to "1 billion", Tencent's repurchase is so unpretentious but loud.
After increasing its regular investment efforts, Tencent's repurchase amount reached a new high.
First, the amount of buybacks in a single quarter hit a record high in the same period. Compared with the repurchase of HK$14.8 billion in the first quarter of this year, the repurchase amount in the second quarter reached HK$37.5 billion, an increase of 150% quarter-on-quarter.
Second, the scale of half-year repurchase has also set a new record. In 2023, Tencent will repurchase 49 billion Hong Kong dollars, which has exceeded the sum of the last ten years, and in the first half of this year, Tencent's repurchase reached 52.3 billion Hong Kong dollars, which is undoubtedly a new record.
When Tencent released its financial report in March this year, it announced that it would invest no less than HK$100 billion (about US$12.8 billion) in share repurchases in 2024. In the first half of this year, it has exceeded 50 billion Hong Kong dollars, and the annual repurchase station of hundreds of billions should be a certainty.
Repurchases continued to increase, and Tencent Lianzhuang Hong Kong stocks were "repurchase kings". As of June 30, the total amount of repurchases by companies listed on the Hong Kong Stock Exchange in the first half of the year reached HK$121 billion, and Tencent contributed more than 40% of the total repurchases of HK$52.3 billion, which played a pivotal role in stabilizing the market.
As Tencent began to increase its buyback efforts in 2022, the total share capital has also been steadily reduced, from 9.6 billion shares in 2022 to 9.35 billion shares at present, and the reduction in share capital is also conducive to improving the intrinsic value of Tencent shares.
In December 2023, the China Securities Regulatory Commission issued a revised release of the "Repurchase Rules", and in June this year, at the 2024 Lujiazui Forum, Wu Qing, chairman of the China Securities Regulatory Commission, said that listed companies are representatives of China's outstanding enterprise groups, and will further guide listed companies to establish a sense of actively repaying investors, and better use cash dividends, repurchase and cancellation to give back to investors.
The impact of major shareholders' reductions has declined
Tencent's buyback has become the focus of the market, and we have to start with the story of the major shareholder Prosus' shareholding reduction.
In June 2022, Tencent's major shareholder, Prosus, announced that it would start a long-term, open buyback program to increase the company's own net asset value per share by selling its shares in Tencent to obtain the funds needed for the buyback program.
This gave a blow to the Chinese concept stock market, which was already rumored at that time, and exacerbated the market panic, believing that the reduction was not optimistic about Tencent and would be liquidated and sold.
Looking back today, that was not the case. A strong evidence is that since the reduction, the "teng" of the major shareholder Prosus has been getting higher and higher, and the current "teng" in each Prosus share has risen from 0.915 at the beginning of the reduction to 0.936 at present.
Prosus' sale of Tencent shares actually has its own calculations. To put it simply, if its share price is significantly lower than its net assets, and the stock price is inverted with the actual asset price, then it is too cost-effective for Prosus to smooth out the discount by reducing its holdings and buybacks.
As a result of ongoing buybacks, Prosus' net assets discount has fallen from 46% at the time of the buyback program to 37.7% currently. At the time of his earnings debut, new CEO Fabricio Bloisi said that share buybacks would continue as long as the share price remained at a high discount to the net asset value of the underlying equity, but that he was enthusiastic about investing in Tencent.
"We have been supporting them for a long time and will continue to work with Tencent to maintain our position as a significant shareholder of Tencent for a long time." Fabricio Bloisi said.
At the end of the day, Tencent remains one of Prosus' most valuable assets.
Even aside from this reason, Tencent's buyback efforts have greatly exceeded the reduction of holdings.
As shown in the chart, starting from the third quarter of 2023, Tencent's buybacks have exceeded the amount of Prosus' holdings for four consecutive quarters, and the gap has been widening, and by the second quarter of this year, Tencent's total buybacks have been 2.7 times the scale of Prosus's holdings.
Taking the weekly data from June 17 to June 21 as an example, Tencent Holdings traded about 92 million shares that week, with a turnover of about HK $35.196 billion (about US$4.484 billion), Tencent repurchased a total of 13.08 million shares that week, amounting to about US$642 million, and Prosus sold a total of 2.5 million shares of Tencent. Based on this calculation, the number of weekly holdings of Prosus accounts for about 2.72% of the weekly trading volume, and Tencent's buyback strength is as much as 5 times that of it.
In addition, from the trend point of view, Prosus's reduction in Tencent is getting smaller and smaller. Due to the restrictions on buybacks on Euronext, listed companies cannot repurchase more than 25% of the average daily trading volume of the previous 20 trading days.
In the past, due to the continuous repurchase and cancellation of Prosus, the continuous reduction of outstanding shares led to a decrease in liquidity and trading volume, which affected the daily repurchase amount, and ultimately led to a decrease in the amount of Tencent reduction.
Even if Prosus repurchased US$3.36 billion in the first half of the year, the total amount of shares repurchased by Prosus this year is expected to be about US$6.72 billion, which is 1.9 times the total amount of Prosus' shareholding reduction compared with Tencent's plan to repurchase at least HK$100 billion.
Under the trend of eliminating the other, the liquidity pressure brought about by the reduction of major shareholders has almost dissipated, and Tencent has passed the 10,000 mountains.
Deterministic regression
If it is just to offset the pressure of reducing holdings, there is no need for Tencent to continue to increase buybacks.
According to the statistics of Tencent's repurchase information disclosed by the Hong Kong Stock Exchange, Tencent's average repurchase price in the second quarter was HK$361.8, an increase of nearly 25% compared with the average repurchase price of HK$290.6 in the first quarter. Among them, on May 20, when the stock price soared after the disclosure of the first quarterly results, Tencent still repurchased, with the highest repurchase price reaching HK $399.8.
Tencent President Martin Lau once said on the institutional phone after the first quarterly report that Tencent will continue to implement the share repurchase plan according to the announced pace. "The share price we announced the buyback was very attractive, and we still think it is still the same today, even though the share price has risen significantly recently."
The implication is that Tencent believes that its current stock price is still cheap, and in the final analysis, it is confident in its future development.
Where does faith come from? It has been revealed in this year's quarterly report. Tencent's revenue and gross profit both hit record highs in the quarter, and the net profit (Non-IFRS) growth rate reached 54% year-on-year, significantly higher than the market consensus expectation.
Tencent's "sprout" business came out of the circle at the staff meeting at the beginning of this year. Ma Huateng said, "Every business should think about itself: first, whether it can be evergreen, new business is not so easy to cultivate, and we must consider how to be evergreen in our own territory; Second, consider whether there is a new sprout, and if the sprout is from its own branch, it is not found outside. ”
Tencent's budding business can be roughly divided into four sectors: WeChat users and business ecology, SaaS business in To B, overseas games, and AI models.
With its 12 years of profound heritage, WeChat has become a model of "rejuvenation sprouts", showing strong ecological vitality.
According to the first quarter report of 2024, the combined number of monthly active accounts of WeChat and WeChat has further increased to 1.359 billion, and products such as video accounts, mini programs, mini games, and WeChat search have contributed new momentum to high-quality growth.
The To B business, represented by financial technology and enterprise services, has become Tencent's largest revenue contributor. In the first quarter of this year, benefiting from the improved cost efficiency of the cloud business, the gross profit increased by 42% year-on-year.
Among them, the service fee of Channels live broadcast technology has become an important source of Tencent's enterprise service revenue, which has greatly improved the profit margin of the business. WeCom and Tencent Cloud both achieved a two-fold increase in integrated revenue; Tencent Meeting's agency revenue increased by 7 times.
And the game going overseas has become a new blue ocean for Tencent's growth. From 10% of single-quarter revenue contribution in Q3 2019 to a record high of 30% in 2023, this jump marks a key progress in Tencent Games' overseas expansion and opens a new starting point for its business globalization.
Compared with the above-mentioned sprout business, the AI large model business is different, and taking on more responsibility is to drive the high-quality growth of other sprout businesses.
In the first quarter of this year, Tencent collaboration SaaS products such as WeCom, Tencent Meeting, Tencent Docs, Tencent Lexiang, Tencent e-Sign, and Tencent Questionnaire have all been connected to Tencent's hybrid model to achieve intelligent upgrades.
In the short term, large models can help upgrade advertising and other businesses, improve advertising conversion efficiency, and save advertising production costs. While bringing added value to advertisers, increase access to advertisers' budgets.
In the medium and long term, the interface of AI+ applications has not yet given birth to super applications, but it does not mean that there will be no new large-scale application entrances in the future.
Today, Tencent's hybrid model has been applied to many industries such as automobile, retail, education, finance and healthcare, and has become a new growth point for enterprise service business.
Looking back at Tencent's growth curve over the past two years, the impact of major shareholder reductions on the market has gradually diminished and become almost negligible, marking the end of a period of uncertainty.
If organic growth is like the North Star, guiding Tencent to explore and explore new business areas, share buybacks are the ballast stone to ensure that the company moves forward steadily in a turbulent market.
The combination of the two has become Tencent's greatest certainty at the moment.