Samsung, Tencent surge in race to become Asia’s most valuable firm

REUTERS/Kim Kyung-Hoon

Tencent Holdings Ltd and Samsung Electronics Co Ltd are racing to be crowned Asia’s most valuable company as expectations for robust earnings growth push their share prices to record highs.

Their surge – both have gained by a third this year – has made them the world’s best performing large-cap tech stocks and highlights how these nimble Asian firms are thriving while rivals Apple Inc and Alibaba have struggled.

“These companies can grow earnings despite weaker global growth,” said Andrew Gillan, head of Asia ex-Japan equities at fund managing firm Henderson Global Investors, which is overweight on Asian technology firms.

“The operating fundamentals of the Chinese internet sector particularly have surprised positively in the most recent quarterly results.”

While many investors remain upbeat about Samsung and Tencent, some caution the firms are vulnerable to rapid swings in sentiment on any sign of slowing momentum. Samsung and Tencent have been more volatile than the Asia tech sector and the broader market this year.

On Wednesday, Samsung said sales of its latest flagship smartphone were out-stripping supply, but second-half profits could still take a hit if production shortfalls are not fixed and a recovery in components demand fails to eventuate.

Moody’s Investor Service also warned that Samsung’s profit margins might narrow in the second half because of seasonal factors in the consumer electronics business and competitive pressures.

For Tencent, the market expectations that are driving shares higher are themselves a risk, according to Nomura. A faster-than-expected slowdown in personal computer game revenue, aggressive spending and new products or business models from competitors could weigh on earnings, the bank warned.

The Numbers

Samsung and Tencent have added about $30 billion in market value since Thursday, surging to all-time highs. Tencent is valued at $249 billion, only 4 percent smaller than the most valuable Asian firm, China Mobile, at $259 billion. Samsung is now worth $239 billion.

Tencent is now the world’s 12th-biggest company by market value and Samsung the 17th-largest, Thomson Reuters data shows. That’s up from Nos. 26 and 33 respectively just five months ago, according to a PricewaterhouseCoopers ranking released March 31.

Samsung shares’ have significantly outperformed Apple’s – the Korean firm has leapt 50 percent over the past year, while the U.S. company has gained 3 percent amid concern about weak sales in China.

The gap between Samsung’s price-to-earnings ratio of 12.4 and Apple’s 12.7 is now the narrowest since late 2011, although Samsung is still worth less than half the $586 billion Apple, according to Thomson Reuters data.

Samsung’s share price growth spurt comes after years of struggle in its smartphone business which left investors impatient for higher returns.

The firm revived mobile profits by restructuring its product line-up this year and is seeking ways to sustain earnings momentum. Buybacks and higher dividends have also boosted shares.

Tencent is significantly more expensive than Samsung. The Chinese internet firm, whose popular WeChat and Weixin messaging apps in China saw active monthly user numbers jump 34 percent in the second quarter, trades at 46.8 times earnings, closing in on Facebook’s 59.

China’s slowest economic growth in 25 years and some questionable acquisitions have clouded the outlook for Chinese e-commerce giant Alibaba, but Tencent has managed to thrive thanks in part to its focus on rapidly growing mobile gaming.

Tencent outshone peers including Baidu with a forecast-beating 47 percent jump in second-quarter profit, after it diversified into areas such as music, video and advertising.

HSBC expects further earnings growth, driven by new income streams such as advertising, premium content, cloud services and finance.

Also read:

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Samsung Electronics buys $450m stake in Chinese electric car firm BYD

Reuters

 

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Following vacancies can be applied for (only in Singapore).   

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.