Naspers bullish on China, Tencent
• CEO Bob van Dijk says group is putting its money where its mouth is and will be a large owner of Chinese company for many years
While sentiment remains negative on Chinese internet companies, Naspers, one of the largest international investors in the space, says it will remain invested in the country, a clear indication of which is its holding in internet giant Tencent. Rumours have for some time driven speculation that Naspers is looking to get rid of its stake in Tencent.
While sentiment remains negative on Chinese internet companies, Naspers, one of the largest international investors in the space, says it will remain invested in the country, a clear indication of which is its holding in internet giant Tencent.
Rumours have for some time driven speculation that Naspers is looking to get rid of its stake in Tencent as a number of other international investors have begun to exit their investments on the Chinese mainland.
This has been compounded by Tencent having been hammered by the Chinese government’s crackdown of the tech sector over the past few years.
The bearish sentiment on the two companies came to a head on October 24 when the Naspers-Prosus stable saw combined losses of more than R432bn in one day of trading, sparked by news that Xi Jinping secured a historic third term as China’s president, tightening his hold on the economy, which has shown hostility to investors for 18 months or so. Despite this volatility, SA’s largest publicly traded group remains bullish on its prospects in China.
“We’re putting our money where our mouth is. We’re still a very large owner of Tencent and we will continue to be a large owner of Tencent for many years to come. We’re big believers in the future of China tech and Tencent in particular,” Naspers CEO Bob van Dijk said at a media event on Wednesday.
“There’s obviously been regulatory worries over time. We’ve seen a real change in tone since the [ruling] party congress in the last few months. There’s been a real softening in many dimensions that we hoped and have now seen.”
Prosus and Naspers are still reeling from regulatory assaults on China’s tech sector, including effectively trashing the commercial logic of listing Jack Ma’s
Ant Group after the Communist Party politburo’s vow in 2020 to keep “disorderly expansion of capital” under control.
Prosus, which has its primary listing in Amsterdam, owns its 28% stake in Tencent, worth R1.3-trillion, via a variable interest entity set up for Hong Kong listing purposes to allow foreign investors to buy into the biggest tech company in China.
Van Dijk’s comments come amid a broader trend of early international backers of Chinese firms now cashing out their investments, having made billions in profit.
In August, SoftBank said it unloaded billions of dollars in shares in e-commerce pioneer Alibaba. In September, Warren Buffett’s Berkshire Hathaway further trimmed its stake in China’s biggest electric-vehicle maker, BYD.
In its home market, profit has been hard to come by for its online retail unit Takealot which posted a $13m (R223m) interim loss to September. The business is also made up of clothing business Superbalist and Mr Delivery. Naspers, which mainly invests in food delivery, classified, fintech and education, reported that core headline earnings fell almost three quarters as the global economic downturn, characterised by high inflation and interest rates, weighed on consumers.
The global internet and media company, valued at R1.05-trillion on the JSE, reported on Tuesday that its core headline earnings, its preferred profitability metric, which strips out certain nonoperating items such as share-based payment expenses on transactions where there is no cash cost, fell 74.1% year on year to $372m (R6.32bn).
This was partly because the contribution from Tencent was 29.5% lower at $2.1bn in the period under review.
Despite the performance in SA, the group trumpeted the performance of its e-commerce portfolio which has shown strong organic revenue growth of 41%.
While positive, Renier De Bruyn, senior investment analyst at Sanlam Private Wealth, said more work is needed to make these notoriously lossmaking units turn the corner.
“Growth was driven by new initiatives that are generating substantial losses,” he said.
“Prosus’s share of e-commerce losses doubled to about $1bn over the period. These businesses require scale to ultimately become profitable, which is why it remains crucial to sustain high topline growth.”