Declaration of special dividend in specie of shares of JD.com

■ Tencent [0700.HK] announced this morning that it has resolved to declare a special interim dividend in specie of shares of JD.com.
■ We believe the reduction in Tencent’s stake in JD.com may ease concerns about Tencent’s influence on internet industry development.
■ We hold a constructive view on the Tencent’s intention to enhance shareholder value.

Declaration of special dividend in specie of shares of JD.com

● Tencent announced this morning that it has resolved to declare a special interim dividend in the form of a distribution in specie of 457,326,671 Class A ordinary shares of JD.com indirectly held by the Company to the shareholders whose names appear on the register of members of the Company on the record date. According to the announcement, the 457,326,671 Class A ordinary shares of JD.com to be distributed represent approximately 86.4% of the Class A ordinary shares of JD.com held by Tencent and approximately 14.7% of the total number of issued shares of JD.com as at 21 December 2021. Based on the latest closing price of HK$279.2 per Class A ordinary share of JD.com, the aggregate market value of the JD.com shares is approximately HK$127.7bn. The basis of the distribution is 1 Class A ordinary share of JD.com for every 21 shares of Tencent. Non-qualifying shareholders will not be entitled to receive JD.com shares; instead, they will receive cash in lieu of JD.com shares in respect of the shares they hold on the basis of 1 Class A ordinary share of JD.com for every 21 shares of Tencent held on the record date.

Our initial view

● Based on yesterday’s closing prices of Tencent and JD.com, the implied yield is about 3.0% to Tencent shareholders. In our view, the distribution in specie of JD.com shares may ease the authorities’ concerns about Tencent’s influence on internet industry development. Mr Marin Lau will retire from JD.com’s board of directors immediately, and Tencent’s stake in JD.com will fall to 2.3% after completion of the transaction. We hold a constructive view on the Tencent’s intention to enhance shareholder value. We don’t expect a material change in business co-operation between the two companies even though Tencent will become a minority shareholder of JD.com. We currently have an ADD rating on Tencent with a DCF-based target price of HK$520.3.