Tencent dishes out Meituan sweeteners

Tencent (0700) posted a better-than-expected 1.1 percent rise in net profit to 39.94 billion yuan (HK$44.13 billion) in the third quarter and said it would give one Meituan (3690) share to shareholders for every 10 they hold as a special dividend in a move that sees it giving up most of its shares in the food delivery firm.

The tech giant's revenue, however, declined 1.6 percent to 140.1 billion yuan, a second straight quarterly revenue drop as it was hit by the economic slowdown and China's regulatory crackdown. It also missed analysts' average forecast of 141.6 billion yuan.

The adjusted net profit, a popular measure for tech firms, grew 1.6 percent to 32.25 billion yuan.

Tencent, which had earlier announced plans to pare its stake in online retailer JD.com (9618), is giving 958 million class B ordinary shares of Meituan as a special interim dividend. The stock to be doled out was valued at HK$155 billion based on Meituan's closing price of HK$162.30 yesterday. It also represents about 91 percent of Tencent's class B stake in the firm.

The decision marks another milestone in Tencent's evolution from a sprawling internet empire with investments across much of China's tech sphere to a more focused, cost-conscious gaming and social media operator. The divestments came after China imposed a series of withering curbs on the industry in 2021, including restrictions on playtime and content.

"Tencent giving away Meituan shares looks like a move to become regulatory compliant," said Shawn Yang, an analyst with Blue Lotus Capital Advisors who has a buy rating on Tencent.

Apart from JD.com and Meituan, Tencent also owns part of Kuaishou Technology (1024), Didi Global and Bilibili (9626).

Demand for video games, a key revenue source for Tencent, remained weak, as it has not received publishing approval for any game in more than a year.

A Tencent subsidiary obtained a license in September but it was for an educational game with no monetization.

Domestic gaming revenue shrank 7 percent to 31.2 billion yuan, while international revenue rose 3 percent to 11.7 billion yuan.

Online advertisement sales also declined by more than 5 percent to 21.5 billion yuan, as advertisers tightened budgets in a weak economy.

For the first nine months, net profit declined 37 percent to 81.98 billion yuan while the adjusted profit went down 13 percent to 85.94 billion yuan.

Revenue for the first three quarters fell 1.5 percent to 409.6 billion yuan.

Tencent shares rose 2.2 percent yesterday ahead of the earnings announcement.