China Mobile & TenCent.....It's complicated,but
I looked at the market on Thursday, what surprised me the most was both China Mobile (941) and TenCent (700) were moved reciprocal against the market trend. Friday morning, many friends were checking around, what was going on to China Mobile?
In a glance of recent news, I had replied and stated it could be a good set of SPD result, which announced a 3 for 10 bonus issue and dividend of RMB1.50 per share, but why TenCent had been moving parallels against China Mobile two days in a row?
Checking is part of the job, verifying is part of the learning curve or experiences accumulation. Why I bother to put my trading trail/idea into writing? A lot of friends asked about it, simply because good habit is the only way to cultivate the trading discipline and the greatest asset is the discipline to stay discipline.
It’s a record for self revision and hoping to improve it from time to time. Best is someone could point out where I had gone wrong or dipped into any errors.
Every season has a reason
Kindly see the news below; In fact, it has been constantly flowing around the market if you have been the China Mobile audient.
So, pretty obvious that the M&A angel is cooking behind the sense. Even though, China Mobile had been denied it, but the takeover news had been flowing around for the last couple of months. I think it is just same like most other countries, denying doesn’t help because insiders had been waving the price.
“Insider trading is just like having an affair, hate and criticizes others when you are not having it, addicted to it when you are having it. I’m here by not having any insider trading in Chine Mobile or TenCent, but to observe the insider trading.”
Briefly, I’m so sorry to say; my understanding toward the TenCent business model is equally like the layman. Thus, please DIY, knowing further about the TenCent business.
On the other hand, I had checked with the industry analysts, concluded the merger in between both companies business is like “如虎添翼”, direct translation is like putting a pair of wings onto a tiger. Or perfect synergy to be precise.
NOTE: Those are young analyst views.
However, saliva is flowing out non-stopping when you look into the TenCent number carefully.
The average net profit margin for its business model is approximately 38%, which attached with an average growth rate of about 58% for the last five years since listed in year 2004.
Very tame total borrowing of merely above RM470 million with backed by net cash position of RMB11.5 billion as of FY-end 2009.
Market capitalization is standing at HK$295,123,290,691.20 as of last Friday at the closing price of HK$161.40. Trading at high P/E of about 49.5x with the support of its high PEG.
Therefore, I’m interested to become TeCent shareholder if the price is reasonable.
How about any clue from China Mobile?
The most recent interview of China Mobile CEO during the recent press conference just after the SPD 20% stake acquisition. As below statement is indicating the future direction of its acquisition; 20 March 2010
“If you talk to a man in a language he understands, that goes to his head. If you speak to him in his language, that goes into is heart.” – Nelson Mandela.
Pal, sorry about maintaining the original statement in Mandarin. I’m totally agreed with Nelson Mandela in the above mentioned quote. Please use Google translate, if you need to understand the original juice.
Thus, looking at both share prices performance since last Thursday till today’s before lunch; China Mobile and TenCent rested at HK$80 +$0.70 and HK$163.60 +HK$2.20 respectively. I think the insiders are accumulating.
How the takeover mechanism works?
Putting down the market capitalization as of current price;
(a) TenCent at HK$163.6 is HK$299,146,036,908.80
(b) China Mobile at HK$80.00 is HK$1,604,915,124,880.00
Comparatively, China Mobile is about 18 times bigger than TenCent in term of market capitalization.
Therefore, share issuing could be an idea mechanism to take over TenCent.
Also Very much depends on;
(a) What is the valuation post merger?
(can work out a post merger model)
(b) How much China Mobile is willing to pay?
(c) Whether the Chinese government is involved in the merger?
If the government is involved, the deal is pretty easy to go through.
My strategy is
China Mobile, buy on weakness, regardless whatsoever rumours are flowing around. The bottom line is this company has plenty of cash even post 20% stake SPD acquisition. Most importantly, China Mobile is in the acquire mode, which had been expressed by its’ CEO in many occasions.
It's just an idea from the share prices reflective, which came across my head for your perusal. Please tell me if I'm wrong.
thanks & regards
ZKIZ Archives @ 2019