Streaming merger pushed amid Tencent selloff

Business | Stella Zhai and Reuters 11 Aug 2020

The selloff in Tencent (0700) extended on Monday following the US ban on WeChat last week, and this comes when the tech giant is accelerating the merger of its live-streaming platforms Douyu and Huya.

Tencent has agreed to acquire all the 30 million B-shares in Huya held by Nasdaq-listed JOYY, the former major shareholder of the platform, at US$810 million (HK$6.28 billion). Also, the two platforms have both received proposal letters from Tencent for a stock-for-stock merger, which is expected to be completed on September 9. Tencent will hold 51 percent stake or 70.4 percent voting rights in Huya, said the companies.

Tencent's shares fell as much as 5 percent before paring the loss, closing at HK$502.

Meanwhile, analysts expect Tencent would record a net profit of between 54.17 billion yuan (HK$60.24 billion) and 58.2 billion yuan in the second quarter, a year-on-year growth of 5.5-13.3 percent

Morningstar Asia maintains Tencent's fair value estimate at HK$597, despite US orders against Wechat, as Tencent's 2019 overseas revenue was less than 5 percent of their total.

While Tencent assesses how its business might be impacted by the US curb, American companies in China may become unintended casualties due to their heavy reliance on the app, analysts said.

If the ban covers US companies doing businesses on WeChat, it would do more harm to US firms such as Walmart and Starbucks than to Tencent, as they use WeChat's embedded 'mini-app' programs to facilitate transactions and engage consumers in China, said Li Chengdong, a Beijing-based tech analyst.

Meanwhile, TF Securities International analyst Kuo Ming-chi predicts iPhone's annual shipments could decline by 25-30 percent as a result of the ban, as Apple may have to exclude WeChat from its App Store in the worst-case scenario, dragging down sales in the mainland.

In other news, Tencent was reported to have fully acquired a Shenzhen-based Nash Big Data Technology, which provides data digging and analysis services with a registered capital of 12.25 million yuan.

Tech stocks in Hong Kong led declines yesterday, with the Hang Seng Tech Index falling as much as 3.6 percent. Alibaba (9988) went down 2.73 percent to HK$242.4, Meituan Dianping (3690) inched up 0.27 percent to HK$223, and Xiaomi (1810) fell 1.94 percent to HK$15.14. Shares of AAC Technologies (2018), a supplier of Apple, dropped 5.63 percent to HK$57.80, the biggest loser among blue chips.

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