21 April 2019
China Literature has nearly 200 million active users. Photo: Bloomberg
China Literature has nearly 200 million active users. Photo: Bloomberg

Which of the Tencent-backed companies is the best bet?

Shares in Tencent’s e-book arm China Literature almost doubled on its trading debut in Hong Kong on Wednesday on expectations it will benefit from its parent’s backing.

However, not all companies associated with the tech behemoth are good bets.

HengTen Networks (00136.HK), of which Evergrande Group and Tencent own 61 percent and 22 percent respectively, went public in 2015. 

The company provides community owners with “one-stop” online-offline services by using internet technology.

Since Tencent only has a minority stake in HengTen, and it has cooperation ties with several other mainland developers to develop similar online-offline community services, the relationship with Tencent has not brought significant benefit to the company in terms of business volume and profit.

HengTen reported an annual revenue of 130 million yuan (US$19.58 million) and a meager profit of 5.37 million yuan for 2016.

Tencent bought 15.7 percent of Kingsoft (03888.HK) for HK$890 million in 2011. The stake was later diluted to 8.2 percent.

Kingsoft was founded by Lei Jun, a respected tech entrepreneur and founder of smartphone maker Xiaomi. However, Tencent has limited business cooperation with Kingsoft – again probably because Tencent only has a minority stake in the company.

Kingsoft suffered a loss of 270 million yuanlast year, and its market value was only HK$27.1 billion, less than a third of China Literature’s.

ZhongAn Online Property and Casualty Insurance was listed in Hong Kong in September this year.

The online-only insurance company was founded in 2013 by Alibaba Group chairman Jack Ma Yun, Tencent’s Pony Ma Huateng, and Ping An Insurance’s Peter Ma Mingzhe.

Each of them owns less than 20 percent of the company. Since all have their own insurance businesses, Alibaba, Tencent and Ping An may not share their valuable customer resources with ZhongAn.

Let’s go back to the case of China Literature. It has nearly 200 million active users.  Theoretically, with such a massive customer base, the company could sell other products like music, video and games to these users.

The reality is, Tencent already has other subsidiaries focusing on different business segments including music, video, online games, insurance, etc.

It would also be quite impossible for China Literature to work with Tencent’s rivals like Alibaba or Baidu to generate additional income.

If investors want to bet on companies that would gain from ties with Tencent, Yixin Group might be a better choice.

Yixin Group, China’s largest car retailing platform, is 24 percent owned by Tencent. Its other shareholders include Bitauto, and Baidu.

China’s auto market is growing steadily. There are lots of car-related businesses the online car sales platform can tap into, such as second-hand car trading, insurance, financing, maintenance, rental, etc.

Most important of all, none of Yixin’s major shareholders operate a similar business.

With no conflict of interest, it’s likely that all of them, including Tencent, will use their influence to drive traffic to Yixin’s platform.

This article appeared in the Hong Kong Economic Journal on Nov. 9

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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