Tencent expanding into Taiwan??

A good example of the power of the techniques I previously posted (yes, that's Loooong time ago..)


Tencent announced an acquisition in Thailand yesterday

However,  if you check out Tencent's recruitment web site  you will see they have been hiring Thailand/Taiwan Country Head for some time....


Job Title: Country Manager of Taiwan//Thailand (Full-time)

Reporting Relationship: Report to General Manager, International Business Department


Location: TaiwanThailand


Roles & Responsibilities:

§ Be responsible for the general management of branch office in each country (First 1-2 years in Shenzhen, PRC, and then move back to home country, i.e., Taiwan, Thailand,);

§ Identify new business opportunities in potential international markets. Introduce, evaluate and recommend opportunities to the management team;

§ Define and structure new business agreements and models. Develop business and operation plans for international projects;

§ Negotiate and close strategic and revenue deals and manage existing partners;

§ Communicate and collaborate with cross-functional internal and external teams (product, engineering, sales, legal and top executives).

Required Qualifications:

§ High level of integrity, dedication and motivation, and great passion for the Internet;

§ MBA degree from a prestigious business school, and minimum of 3 years of prior working experience, preferably in the area of consumer product, consumer services, internet, high tech, or professional services;

§ Strong leadership potential as demonstrated by rapid career advancement;

§ Down-to-earth and hardworking, and distinctive problem-solving, analytical skills and business sense;

§ International exposure is a plus;

§ Be familiar with the culture of Taiwan/Thailand;

§ Fluency in English and Chinese.



.... they are also hiring a Taiwan Country Manager??? What for???


Does it mean Tencent is expanding into Taiwan but yet to be announced? stay tuned.....

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.

Another Solid Year For Tencent (TCEHF.PK or 0700.HK)

Tencent (TCEHF.PK or 0700.HK) announced another solid year of performance yesterday.

Tencent is the largest IM (instant messaging) service provider in China with 580M user accounts. MSN or ICQ is not even a fraction of this number in China, you can look at this chart from Google Trends, it shows the relative frequency of keywords (QQ, ICQ, MSN) search in China, it is a very good indication of their relative popularity among Chinese internet users. We can see from the chart that except in Shanghai where MSN is more popular than QQ ("QQ" is the name of the IM service offered by Tencent), the number of QQ keyword search far exceeded ICQ and MSN in other cities. This is intuitive because there are more foreigners living in Shanghai than in any other Chinese cities, they may be more inclined to using MSN than QQ.

Tencent also provides online game and other internet and mobile value added services in China.

Lets look at some of the important numbers:

Revenue Up 132% YoY
Operating Profit UP 140% YoY

Profitability grows faster than top line! This is a very good sign. A lot of companies sacrifice profit by top line, while Tencent can grow top line by more than 2X with IMPROVED profitability, really impressive !

Online advertising revenue increased by 137% YoY. Majority of such growth was attributed to increased in-game advertising revenue. This is another great thing, in-game ad is believed to be a good new channel of internet ad. EA (ERTS) is also doing the same thing by placing ad to its sports games.

About the Chinese internet development, according to China Internet Network Information Center (CNNIC), Chinese online population has grown by 23.4% in 2006 (vs. 18.1% for 2005). Broadband users growth is at a even higher rate of 41.1% to reach 91M. Country internet penetration rate is 10.5%, versus mobile phone penetration of 40%, still much room to grow!

For those of you who are aware of the new Chinese tax unification policy enacted in the National People Congress meeting concluded last week, coproate tax rate will be standardized to 25% for both local (used to be 33%) and foreign enterprise (used to be 15%) with 5 years grace period, it will have no effect to Tencent (Tencent is a 'foreign' company from tax perspective because it is registered in Hong Kong !!) because it is based in Shenzhen and the Shenzhen government still honour the special 15% tax rate which is eligible for 'strategic high tech' companies located there.

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.


Disclosure of Interest: I am LONG in 0700.HK

China 3G Status Updated and China Mobile

Last week an unofficial source has rumoured that China Mobile Limited (0941.HK NYSE: CHL) is ready to place orders to manufacturers for TD-SCDMA infrastructure network equipment valued at RMB10.4B (US$1.33B).

TD-SCDMA is China's homegrown 3G standard that like any other 3G technologies will provide high speed Internet access, seamless video and multimedia services.

Though Mr. Wang Xudong, who heads the Ministry of Information Industry (MII) still has not confirmed the 3G licensing timeline, he has openly confirmed that there will be 3G service in China for Olympics in 2008.

This week the Chinese authority has also announced that the TS-SCDMA trial network will cover 10 cities including Beijing, Shanghai, Hong Kong and other Chinese cities which co-organize the 2008 Olympics.

It is widely speculated that China Mobile will be appointed by the government to run the home grown standard. It is a dilemma to the Chinese leaders about which operator shall bear this responsibility. On one hand the country must promote and adopt the home grown standard so as to avoid or reduce the amount of royalty to be paid to US and European technology companies as what it did for 2G, so the strongest player probably is the best candidate because it has the cash flow and market power to push the standard; on the other hand any potential damage to CHL’s business is the last thing the authority wants to see.

CHL has gone up by over 40% in past 6 months, the main storyline has been around CHL’s growth potential with new 3G services. However, once it is confirmed that CHL will run TD-SCDMA, I expect there will be short to mid term pressure to the stock as the industry is saying the TD-SCDMA standard is immature and there is a lack of production scale that will result in a lowered CHL profit margin due to higher 3G handset cost subsidy.

Taking this potential risk into account, I am still positive with CHL’s mid to long term future as I believe:

• 3G role out is a slow process with manageable CAPEX impact
• 2.5G voice and value-added service will continue to grow healthily

My analysis as follows:

No matter which standard is being chosen, the national launch of 3G will be a slow process because there is no commercial reason to be hurry. CHL’s GSM network is still expanding rapidly, for the last 3 months in 2006, it has signed up 50M new subscribers monthly which is equivalent to an impressive monthly grow rate of over 10%.

From the figure below (source: CHL interim report), we can see that the YoY 1H06 value-added service (VAS) revenue has grown 37.1%, and over 70% of the total VAS revenue was came from SMS and voice based value-added services (e.g. IVRS service such as dialing a number for weather forecast, etc) which are of low bandwidth or voice based applications. Of the remaining 30%, they are mainly MMS traffic and ringtone download which are still not bandwidth hungry type of applications.

From all the numbers, we can conclude that valued added service revenue still has much room to grow even without the high data rate 3G technology, and the demand for high data rate service is in fact not there yet.

To further substantiate my rationale, let’s look at CHL’s deployment history of its GPRS service (the GSM version of 2.5G data service). The service was launched in China in 2001, however, as of 2004 CHL is still buying new network equipment for different provinces. It means CHL has taken a phrase by phrase role out approach instead of a national roll out in one go. The past history when Chinese companies invested heavily and blindly on capex without solid business plans was long gone. In 1H06, CHL has invested US4.1B in its profit making GSM network expansion, which is 3 times the US1.33B TD-SCDMA trial network investment it is rumored to make. I expect the build up of 3G assets will be slow and hence it shall not impose a huge downside risk to CHL’s financial performance as its 2.5G voice and VAS services will continue to grow healthily. Major 3G investment will not happen until such bandwidth hungry killer applications are identified. (by the way, as of today 3G operators worldwide still cannot identify such applications yet!)

In Vodafone’s (VOD) announcement this week about its acquisition of 67% holding in Hutchison Essar, it mentioned that mobile penetration is China is already 40% while that in India is only 10% and how the Indian market can deliver long term growth to Vodafone. However, I would look at China (CHL) as a lower hanging fruit comparing to Indian market in which the timeframe to fully materialize the potential market opportunity into profit is still unknown.

Applying Peter Lynch's approach to analysis of Tencent 騰訊控股 0700.HK

Even with years of evolution, China’s internet population is still growing at 15% annually while that for US is already close to zero. Out of the many Chinese internet related stocks, my favorite pick is Tencent (HK: 0700, TCEHF.PK). Tencent still has a lot of room to grow in both increasing market penetration and by introducing new services. I am a strong believer of Peter Lynch’s investment approach in which he applied his observations from daily life to his investment picks. Here is how I applied the same in my Tencent pick.

Last month I attended a conference in Shenzhen (in Southern part of China, adjacent to Hong Kong) about intellectual property protection. In the event I met a guy working for Tencent who carried a title of Patent Manager in his namecard. The guy is about than 30 years old, local born in Shenzhen, attended university in France, speak and read fluent Cantonese, French, English (of course also Putonghua).

I was very impressed with what I heard from both my private conversation with him and also his open discussion with the floor audiences (he was one of the event speakers) because:

• I've never seen a PRC internet company with such a position (Patent Manager), there are many of them in companies like Huawei or ZTE, but not with an internet media company like Tencent. This shows how Tencent is above par in the aspect of using patent to protect its business edge. As a matter of fact, Tencent is already using its patent muscle to fend off competitors in China. In a very recent case (Tencent vs. Beijing PICA Co Ltd) in which Tencent sued PICA for providing its customers with Tencent IM services by accessing Tencent's server without its authorization, the court ruled that PICA has infringed Tencent’s IP rights and awarded Tencent 2M Yuan compensation. Though 2M Yuan (~US$250K) is not that much, this nevertheless has sent a very strong message to all potential infringers who compete with Tencent.

• He told us inside Tencent, they have a very strong sense of patent in mind when they design new services, in such a competitive internet environment in PRC, it's a very good attempt to protect its ideas by patent.
  

• Besides, I can sense (instead of what he told me) that the Tencent gentleman I met is very proud of and happy working for Tencent. Having a team of happy employee is nowadays a critical success factor for technology companies which demand innovation and commitment.

• I also learnt that Tencent has a “QQ Lab” initiative, “QQ” is the service brand name for Tencent’s IM service in China. Its QQ Lab is a similar approach to Google Lab in which new services are nurtured. If you ask me to pick a Chinese internet stock with potential as good as Google, I definitely will pick Tencent rather than the direct Chinese search engine comparable Baidu (BIDU). I see a lot of continuous innovations coming from Tencent but I don’t see the same from BIDU.

Apart from that, recently a friend of mine showed me a Tencent recruitment advertisement for its openings in advertising sales positions. At first glance this seems to be a trivial daily matter. However, the advertisement was posted in Media which is a very popular newspaper for advertising industry in Asia. This again tells me they do have someone who really knows the field. At least I've not seen Yahoo Hong Kong doing the same thing, I only see Yahoo HK’s recruiting advertisement appearing in generic newspaper. Sometimes trivial matters do tell something important.

For US based investors, instead of buying the pink sheet which lacks liquidity, you can in fact directly invest in Hong Kong listed stocks. Hong Kong market is open to all investors. For example, ETrade has announced that it is extending its service to cover several new markets (including Hong Kong) and that is a convenient means for you to invest in HK stocks. Hong Kong Dollar is pegged to the US dollar and hence there is no currency risk. Hong Kong dollar is also a freely floated currency (unlike Chinese Yuan which is not yet floated) so you have no worry of forex control.