Adding a new tech stock to our radar: Tencent Holdings Limited (TCEHY)

By: ispeculatornew
Date posted: 04.27.2011 (5:00 am) | Write a Comment  (1 Comment)

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As I am sure that you had figured out, the reason why I discussed pink sheet stocks yesterday was because for the first time, I am adding one of those stocks to the list of stocks that we follow. Having a pink sheet stock was not something that we were aiming for and it certainly had not been planned but after hearing over and over about Tencent Holdings, we decided to look into it despite the fact that it is not traded on US exchanges. The good news is that it can be traded as a pink sheet thus avoid the fees and complications of trading Tencent in its home market; the Hong Kong stock exchange.

What is Tencent Holdings?

It is somewhat ironic for me of all people to become interested in Tencent Holdings because it follows a model similar to the one that Yahoo (YHOO), IAC Interactice (IACI) and other content companies that I have been very critical of follow. But the model is not necessarily bad, it’s more in terms of implementation. I have been fairly bullish about Berkshire Hathaway (BRK.B) which is also a conglomerate. Of course, Tencent, like Yahoo and IACI is only involved in tech units and is thus less diversified than the company ran by Warren Buffet. I became more aware of Tencent when researching ways to invest in Facebook as Tencent is a shareholder in Digital Sky Technologies, one of the leading technology funds.

Why isn’t Tencent Holdings listed in the US?

I wish I had the answer and maybe someone here knows, please do leave us a comment if you do. I will assume that the costs involved are simply greater than the potential benefits at this time.

Is it all about China now?

It would certainly seem that way wouldn’t it? I did add Youku (YOKU) last week and did discuss going long Chinese internet stocks against US ones. But no, it’s not all about China of course. Being what will soon be the most important market in the world does however mean that owning big players there and trading them is critical to what we do in the technology field.

Here are some highlights:

-Revenues have been increasing at great pace from 2,8M RBM in 2006 to 7,15M in 2008 and 19,65M in 2010.
-Profits have increased at a similar pace from 1,063M in 2006 to 9,875M in 2010.
-Tencent Holdings does pay out a dividend of HKD 0.55 per share (as per 2010)

Overall thoughts

Being a pink sheet stock is certainly not a positive for Tencent and perhaps the only good thing about it is that it means many large investors cannot or will not refuse in Tencent despite it being a good value. I’m not sure that I would ever go short on a pink sheet stock (if it’s even possible) but I do think this could be a good long term buy and will certainly be tracking it in the near future.

Disclosure: No current position on Tencent (TCEHY)

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1 Comment

  1. […] Speculator presents Adding a new tech stock to our radar: Tencent Holdings Limited (TCEHY) posted at Intelligent Speculator, saying, “We explain why we have our eye on this new […]

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