Friday, May 4, 2007

Tencent (TCEHF.PK or 0700.HK) Founder Pony Ma Named as “Builders and Titans” by TIME magazine

This week is a great week for Tencent, the most popular instant messaging service provider in China, not only because it is included to the MSCI Hong Kong index (effective end of May), but also its founder Pony Ma is being elected as a member of the TIME 100 list of men and women whose power, talent or moral example is transforming the world.

Market reacted very positively in Hong Kong, the stock (TCEHF.PK or 0700.HK) jumped almost 10% to HK$32.5 in the first 15 minutes, and still gained 3% at HK$30 when market closed.

In my previous discussion on this stock on 22 March I said “Share price dropped by more than 5% today because of a CITI downgrade from BUY to HOLD saying the share price has already appreciated by 20% since Jan and investor shall look for more attractive entry point. I don't agree with CITI's report and I see this as a good buying opportunity. I've increased my existing LONG position at HK$26.2 today.”

I am fortunate that I hold up to my own conviction and ignored the CITI analyst report, otherwise I would have missed a good opportunity to increase my holding in this stock. The stock has appreciated 14% since my last recommendation on 22 March.

With a market cap of HK$53B (US$6.8B), I am surprised that there are no derivative products (eg. warrants) available for this stock, otherwise I would rather invest in Tencent’s derivative products with higher leverage for higher potential return. I think this is a very good indication that investors in Hong Kong are not too keen on internet or technology stocks, it may be a mistake when Tencent has chosen Hong Kong rather than Nasdaq for its initial offer.

It’s also an excellent time for investment bankers to pitch Tencent management for a secondary listing in US which can support a much higher PE and can draw a much better attention from institutional investors.

I am still very positive on this company and will keep my long position.