Samsung, Tencent surge in
race to become Asia's most valuable firm
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[August 24, 2016]
By Nichola Saminather
SINGAPORE (Reuters) - 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
"The operating fundamentals of the Chinese internet sector
particularly have surprised positively in the most recent quarterly
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
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.
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.
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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 <BIDU.O> 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.
(Reporting by Nichola Saminather; Additional reporting by Dahee Kim; Editing by
Miyoung Kim and Stephen Coates)
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