Over 50 million shares! Tencent once again faces significant reduction in holdings by major shareholders. Can the 100 billion buyback plan withstand the pressure?

According to the Zhitong Finance and Economics APP, Tencent Holdings (00700) major shareholder Naspers continues to reduce its holdings in Tencent. According to data disclosed by Prosus, a subsidiary of Naspers, the number of Tencent shares held has decreased to 2.326 billion shares, a reduction of approximately 50.9 million shares from the 2.377 billion shares disclosed on December 7 last year. In addition, the number of Meituan (03690) shares held by Prosus has remained unchanged at 258 million shares.

While Naspers continues to reduce its holdings, Tencent is continuously conducting buybacks. On March 20, Tencent announced that its buyback scale for 2024 will at least double, increasing from HKD 49 billion in 2023 to over HKD 100 billion in 2024. This means that Tencent believes its stock price is significantly below its intrinsic value, sending a positive signal to investors to stabilize investor confidence and the company's stock price.

It is reported that Tencent's buyback amount in 2023 was HKD 49 billion, exceeding the total buyback amount of the past decade. From December 8 last year to the end of March this year, Tencent repurchased a total of 78 million shares, involving nearly HKD 22.9 billion.

The confidence behind Tencent's large-scale buybacks comes from its ample cash flow. The financial report shows that Tencent's net cash flow from operating activities in 2023 was RMB 221.962 billion, a year-on-year increase of 52%. As of the end of 2023, the company had approximately RMB 172.3 billion in cash and cash equivalents.

Tencent has previously stated that the continuous and strong buybacks in the past two years are not only a responsible feedback to investors but also represent recognition of the company's long-term value and confidence in its future prospects.

Tencent President Liu Chiping stated at a mid-March performance press conference that currently, Chinese internet company stocks are undervalued. He affirmed that increasing buybacks is the most beneficial solution for shareholders, especially when the stock price is undervalued. Tencent is capable of continuously rewarding shareholders. Last year, Tencent's overall cash flow reached USD 24 billion, and this year's cash flow is expected to continue to grow.

Behind Tencent's massive buybacks with "real money," is the support of its operational performance. Zheshang Securities stated that Tencent's fundamentals are expected to receive a significant boost in 2024. This is mainly due to: strengthening core business, focusing on effective operation of existing businesses, scheduling new star game products, and the upward trend in the gaming business; Video Number and mini-games driving continuous improvement in revenue structure, coupled with the company's cost reduction and efficiency improvement, are expected to further lift profits.

Analysts believe that in 2023, although Tencent's buyback amount reached a new high, it was still lower than the amount cashed out by Tencent's major shareholders, resulting in a relatively sluggish stock price trend. With the buyback amount raised to over HKD 100 billion this time, various parties are expected to have an advantage in pushing Tencent's stock price to fluctuate upwards.