Prosus to Sell Down on Tencent Stake, but Our Outlook for Tencent Remains Unchanged

Wide-moat Tencent’s shares fell almost 2% on June 27 (against a 5% increase in the Hang Seng Tech Index) following its largest shareholder Prosus’ announcement to gradually sell down its stake. Prosus holds about a 29% stake after its parent Naspers became an early Tencent investor more than two decades ago. The Dutch technology investor did not specify how many shares it intends to dispose of in total, but it anticipates that the number of Tencent shares that will be sold per day will represent a small percentage of the average daily trading volume of Tencent. The share sale plan came as a surprise as Prosus had agreed not to sell further Tencent shares after the disposal of a 2% stake in 2021. We do not view Prosus’ decision to sell the stock as indicative of any fundamental changes to Tencent’s business. Instead, we believe the decision was made to finance a shares buyback program that aims to narrow a long-standing discount Prosus’ shares trade to its net asset value. With our outlook for the company unchanged, we maintain our HKD 741 per share fair value estimate.