Asia's Tech Scene Gets a New Warren Buffett
(Bloomberg Gadfly) -- Move over, Masayoshi Son. Pony Ma of Tencent Holdings Ltd. is emerging as the true Warren Buffett of Asia's tech scene.
As many technology firms grow, they start to suffer what's known as a conglomerate discount.
SoftBank Group Corp. and South Africa's Naspers Ltd. are prime examples. How can SoftBank be a "tech-focused Berkshire Hathaway," as Bernstein Research calls it, if the technology-company stocks it owns are worth $65 billion more than its entire market value? As for Naspers, its one-third stake in Tencent is now worth close to $140 billion, $35 billion more than Naspers' own market cap. Neither is delivering value to its shareholders. Tencent's own valuation -- at 44.3 times forward earnings -- hardly suggests any discount.
Tencent's spinoff and listing in Hong Kong of China Literature Ltd. shows Chairman and CEO Ma won't fall into the same trap. The nation's largest online publishing house and e-book seller is seeking to raise as much as $1.1 billion and aims to begin trading in the city on Nov. 8.
China Literature is going public just as the e-book market starts to boil. Rival iReader Technology Co. has been trading up to the limit in Shanghai almost daily since its debut last month and is already at 94.5 times forward earnings.
But Ma had no time for China's excruciatingly long IPO line. Beijing-based iReader had to wait 461 days between filing its sale documents and actually listing. The average waiting time this year for mainland companies has been a staggering 598 days, or more than one-and-a-half years, according to data compiled by Bloomberg. The failed share sale in 2013 of Cloudary Corp., now part of today's China Literature, serves as a pertinent reminder that timetables don't always work.
Ma is also being smart by targeting rich investors. Existing Tencent shareholders get priority entitlement to China Literature stock, with 1,256 shares in the former guaranteeing one of the latter. Considering Tencent closed in Hong Kong on the Oct. 20 cut-off date at HK$349.60 ($44.80), that's a cool $56,269 just for a small look in.
The beauty of high-net-worth or institutional investors is that they tend to be more patient. Like SoftBank and Naspers, Tencent has also been on an acquisition spree, spending some $50 billion over the past five years on stakes in companies from Flipkart Online Services Pvt. to share-riding app Ola. It will take time to monetize those investments.
Firms that make money from a variety of sources are more likely to be lumped with a conglomerate discount. Other revenue at Tencent, which includes cloud services, mobile payments and television dramas, accounts for 17 percent of the total. Spinoffs such as China Literature will help make the company even more transparent.
As I have argued, SoftBank's Son is certainly a visionary, but his main mantra seems to be buy. Ma, on the other hand, has figured out how to sell as well.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Shuli Ren is a Bloomberg Gadfly columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.
To contact the author of this story: Shuli Ren in Hong Kong at email@example.com.
©2017 Bloomberg L.P.