Thread/

$TCEHY announced that they are giving shareholders their ~18% stake in $JD as a special dividend, which is a 3% yield. Shareholders receive one JD share for every 21 Tencent shares they own.

Here’s why this is even better than it might seem at first glance…
1/

This one off special dividend could potentially be the first of many for Tencent over the long-term. I have seen some commentary online calling this ‘a move out of the $IAC playbook’..

More specifically it’s a homage to the great Barry Diller.
2/

The idea of this is pretty exciting for $TCEHY shareholders. But probably even more exciting for $PROSY shareholders.

Just to give some context for those who are unfamiliar… Here is the Barry Diller & $IAC playbook in a nutshell:
3/

1.Target a fragmented market that has high future growth expectations.

2.Use M&A to grow within the market.

3.Scale and build quality businesses.

4.Once a business has low expected IRR or unrealised value, spin off and return capital to shareholders.
4/

Now that’s certainly an oversimplification and does no justice to how great Barry Diller is as a capital allocator. But hopefully you get the idea.

Now here’s how this could benefit Tencent & Prosus shareholders..
5/

Tencent has definitely followed the playbook so far. They chose a growing, fragmented market in e-commerce. They bought large stakes in public and private companies like $JD, $PDD, Meituan & KE Holdings whilst growing their own, core e-commerce business.
6/

Now that the E-commerce market is more mature, particularly $JD as a business. Plus the regulatory uncertainties and crackdowns they face in China..

It seems like a great time to spin-off and return a nice yield to shareholders..
7/

The additional appeal to shareholders here is that there are plenty of other extremely valuable businesses within the Tencent portfolio that is largely unrecognised by the market.

They have a huge market share in the gaming industry that is full of value.
8/

Just to name a few potential spin-off contenders that could offer a lot of value to shareholders;
Riot games, Epic games, stake in $SE, Douyu, $ATVI

Then beyond gaming there is stakes in $TSLA, $SPOT $PDD, Nio + a range of different public and private businesses.
9/

Now for $PROSY shareholders it could be even more appealing. Prosus own 28% of Tencent and their stake in Tencent makes up ~85% of their NAV. They also currently trade at about a 40% discount to NAV.
10/

This additional capital that Prosus receive from $JD shares or any future special dividends can be directed to two places;

1.Extremely cheap buybacks whilst at a huge discount to NAV.
2.VC portfolio that has a ~18% IRR.
11/

In summary, after Chinese stocks have been beaten down all year, it’s nice to have an interesting value proposition as a $TCEHY and $PROSY shareholder. I’d like to see more and I’m curious as to how this plays out.

Even if the $JD shares are just a one-off.

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More from @frankinvesting

24 Dec
1/

$BABA in their most recent investor presentation reported the China cloud market size in 2020 at $32B of which they have a market share of ~30% which equated to $11B in revenues FY21.

Now here’s where it gets pretty crazy …
2/

They estimate the China cloud market size in 2025 to be $154B which is a 37% CAGR.

If $BABA maintain ~30% market share that will be $46B in revenues from the cloud business in FY25. Over 4x the current revenue for Alibaba cloud.
3/

Western cloud businesses like AWS and Azure are valued at ~15x sales or more by most analysts.

An equivalent multiple to $BABA cloud in 2025 would give a value of $693b which is over double the current market cap for Alibaba.
Read 4 tweets
23 Dec
Thread/

Below is a list of five of the best investing Twitter accounts and what you can expect if you follow them.

I’ve also included an introductory thread from each to give you a taste. You will learn a lot following these guys.

Enjoy!
1/

@10kdiver

Great detailed, deep dive threads on some of the more complex or misunderstood concepts of investing. Always enjoyable threads full of great visuals.
2/

@puppyeh1

Coverage and commentary on a range of different asymmetric opportunities. Plenty of special situations and illiquid securities. Plus some honest opinions, no holding back.
Read 7 tweets
22 Dec
1/

If you want to take advantage of low prices in China I think $TCEHY is the best bet. $BABA is slightly cheaper, but Tencent is higher quality with better management imo. Both trade at ~10-12x NTM earnings if you back out investments and cash.
2/

Both have regulatory risks, maybe slightly less so for $TCEHY since they are somewhat globally diversified through the investment portfolio.

$BABA has huge upside (uncertain) with their market leading cloud business. But Tencent could benefit from their own cloud as well.
3/

$TCEHY core business offers slightly more growth imo. But again, depends on how $BABA cloud works out for overall growth.

If I had to choose, I’d prefer my money with Pony Ma. Although I’ve got a bet on both horses in the race.
Read 4 tweets
4 Oct
1/

$TCEHY back-of-envelope valuation

10yr FCF per share CAGR of 31%
10yr EPS CAGR of 34%
10yr median FCF margin of 34%
ROIIC 59.4%
Reinvestment rate 41.7%

Investment portfolio value of ~$200B (conservatively).

LTM earnings $28.7B
Current Market Cap $564.4B
2/

That’s a P/E of 19.6

If we back out the investment portfolio value we get to just 12.6x earnings for the core business.

ROIIC * Reinvestment rate gets us to 25% growth. Let’s slow that down to 15% to be conservative.
3/

If we apply 15% growth to $81.2B LTM revenues we get to $163.2B in 5Y.

Median 10yr FCF margin is 34%, let’s use just 25% to be conservative again.

That gives us a FY26 FCF of $40.8B
Read 5 tweets
28 Sep
Thread/

$TCEHY & the gaming crackdown in China.

One of the main reasons for Tencent’s 40% share price decline since February, is the CCP’s crackdowns on the gaming industry.
1/

The crackdown includes a restriction for all minors ‘under 18’ being limited to only 3 hours of playing video games per week.

They have 1 hour on Friday, Saturday & Sunday between 8-9pm, which is being monitored by a face scan from gaming companies such as $TCEHY
2/

At first, this seemed like horrible news for Tencent and the media has loved to make it seem that way.

However, after taking a deeper look I think the impact to $TCEHY is actually quite minimal.
Read 10 tweets
17 Sep
Thread/ 5 investing 'checklist' items.

I don't personally use or follow a strict checklist. I certainly don't think it could be used as a screening tool. But here are some general criteria I like to see in an investment.
1/ A founder-led/owner operator business with high insider ownership & a focus on long-term, intrinsic value per share growth. Ideally I'd like the CEO to have a majority of their net worth invested in the company.
2/ A sustainable competitive advantage & moat. Preferably in an industry with high barriers of entry, a low cost production advantage & pricing power. Ideally they are able to disrupt the industry.
Read 6 tweets

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