China’s leading technology firms are increasingly channeling their cash back to shareholders, as they intensify stock buybacks to bolster their struggling share prices.
In 2024, share repurchases of companies listed in Hong Kong have surged to HK$187 billion ($24 billion), surpassing last year’s record, according to Bloomberg data. This trend is largely driven by cash-rich internet giants, with Tencent Holdings Ltd. responsible for 40% of this year’s total repurchases.
Persistent economic challenges in China and subdued consumer spending online have prompted tech companies to enhance shareholder returns as a means of maintaining investor confidence.
“It’s a win-win for both companies and investors,” said Xin-Yao Ng, Director of Investment at abrdn Asia Ltd. “Companies are motivated internally, and investor pressure will persist as long as economic growth remains uncertain.”
The tech sector is facing mounting pressure due to slowing e-commerce revenue growth and weak online advertising performance. This has led to a 16% drop in the Hang Seng Tech Index since its peak in May.
Despite these challenges, strong cash flows and minimal capital expenditure requirements enable tech firms to provide substantial returns. Furthermore, recent regulatory restrictions on sector consolidation have reduced the need for acquisitions, allowing more funds to be returned to shareholders, according to Ng.
Returns from China’s largest tech companies are outperforming those of global peers. For instance, e-commerce titan Alibaba Group Holding Ltd. now offers a shareholder yield exceeding 8%, while social media platform Weibo Corp. provides 7.5%. These figures surpass those of the Magnificent Seven tech giants, with Meta Platforms Inc. offering the highest yield in that group at 3.7%.
Direct cash payouts have also improved, with the Hang Seng Tech Index’s estimated forward dividend yield more than doubling over the past year to over 1%. However, the index is trading close to a record low, at less than 13 times expected earnings for the next 12 months.
“I believe higher shareholder returns are likely to persist, given the depressed valuations and the robust cash generation of internet companies, which seems sustainable despite limited growth prospects,” said Vey-Sern Ling, Managing Director at Union Bancaire Privee.
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