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Tencent e-commerce divestments present opportunities
Tencent announced a couple of divestments over the past three weeks. 1) On 23 Dec, Tencent declared it was distributing JD.com (9618) shares representing about 86.4% of its total stake and nearly 15% of the online retailer's total issued shares. 2) Tencent also reduced its stake in Sea Limited to 18.7% from 21.3%. We believe the declines in JD’s and Sea’s stocks are mainly due to the additional supply of shares and valuations have become attractive. They offer investors an opportunity to pick up these e-commerce companies with strong growth prospects at a reasonable price.
JD.com (9618): JD is China’s no. 2 e-commerce player and counts Walmart amongst its strategic investors. In April, rival Alibaba was fined $2.8b for violating anti-monopoly regulations regarding the practice of "pick one of two," in which Alibaba would force brands into exclusivity contracts for access to its platform. This will allow JD to gain access to such brands. JD currently trades at 31x 2022F PE, which is attractive given 2025F EPS is expected to almost triple from 2022F levels.
Sea Limited (SE): Sea is South-east Asia’s most valuable tech company. SE is loss making but is growing rapidly. Excluding losses from its Shopee e-commerce and digital finance businesses, SE trades at 50x trailing 12m operating profit from its gaming business, which is attractive in our view given the 146% yoy increase over the latest reported 12m period. Shopee has also become the leading e-commerce player in South-east Asia, and E-commerce revenues are still more than doubling yoy.
At the strike level of 73% of current prices, the underlying stocks have an im