Over the past five years, Tencent founder Pony Ma Hua-teng made three major disposals of shares. Two of them turned out to be big mistakes given the extraordinary rally of the tech counter in the last couple of years. In the latest move, he reduced his stake to under 10 percent earlier this month.
Should investors follow him this time? Or do the opposite based on Ma’s track record of underestimating Tencent’s upside?
Ma sold a total of 25 million shares during the first week of December, at prices ranging between HK$118.61 and HK$119.97, cashing in around HK$3 billion. After the deal, Ma’s stake was reduced to 9.87 percent from 10.13 percent. The counter dropped 4.3 percent during the last three days after news of his disposal broke out.
The shares that Ma sold accounted for less than 0.5 percent of the total outstanding shares. He remains the tech giant’s largest individual shareholder.
Ma cashed in HK$187 million back in 2009. He did it again in 2011, when he had to fulfill his contractual obligation to a collar option deal struck with certain investment banks.
Put simply, he made a bet with his counterparty: If the share price of Tencent dropped below HK$67.8 (or HK$13.56 in today’s terms after a one to five share split this May) during the contract period, Ma would receive some option premium. On the other hand, if the share price rose above a set price, Ma had to sell the share at that level.
He sold 18 million shares altogether to settle the option contracts. Had Ma never entered into such agreements and kept all the shares, he would have been HK$9 billion richer by now.
Will history repeat itself? Or it is really the time to cash in?
A Tencent spokeswoman said the sale was related to Ma’s “personal wealth management”.
Local media recently reported that Ma may buy into Ping An Insurance Group via a private share placement. The Ping An deal is expected to raise a total of HK$36.5 billion and involves up to 10 investors. Alibaba’s Jack Ma is also one of the investors for this placement.
Supposing Tencent’s Ma is selling in order to fund the Ping An purchase, one possible interpretation is that he believes the money he invested in Ping An would yield a better return.
Analysts, for now, seem to agree with Ma.
Sam Chi Yung, a strategist at Delta Asia Securities, said the move reflects Ma’s concern that the company may not be able to maintain a high growth rate in the next couple of quarters.
Some chartists see a weak technical pattern as a negative signal: Tencent is trading below its 250-day moving average.
Others point out that the company’s latest quarterly results have missed market expectations and research institutes have thus lowered their target price for Tencent.
The company’s mobile-gaming income dropped to 2.6 billion yuan (US$420 million) in the third quarter from 3 billion yuan in the previous three months.
Tencent is also exploring new growth areas other than gaming, but new ventures may take time to bear fruit.
Its taxi-hailing app Didi Dache, for example, announced this week that it has received its latest round of funding worth US$700 million from Singapore sovereign fund Temasek, Russia fund DST Global and Tencent.
With the fund raised, Didi will develop other businesses such as car rental, concierge travel service, same-city logistics and mobile retail services.
There is no concrete business model right now. But it is hoped that using customers’ data gathered, Didi will become a profitable operation.
All these, of course, are mere conjectures.
Tech is a fast-changing business and investor sentiment is always difficult to predict. Perhaps nobody, not even Ma or the analysts, would know the right time to buy or sell.
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