Tencent pushes further into brick and mortar
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Tencent pushes further into brick and mortar

Chinese internet giant Tencent, the country’s most powerful force in social media, messaging, and mobile gaming, is pushing into the offline world. Last week, it pushed a little further, with an agreement to buy a 5% stake in China’s Yonghui Superstores Co. for about $639 million. Yonghui has more than 580 outlets across the country, and Tencent is getting a bargain – the price it’s paying for the brick-and-mortar retailer is a 10% discount from its last trading value.

Tencent’s share price is up by 105% so far this year

graph 1218 tencent

SOURCE: Yahoo Finance

Yonghui is the country’s fourth largest hypermarket operator, and is no stranger to the tech sector, with China’s second online retailer, JD.com, already holding an investment in the company. Details of Tencent’s deal with Yonghui are not fully disclosed to the public, but we know that the former company intends to buy a further 15% stake in Yonghui’s supply chain and logistics unit via a capital injection.

Tencent’s investment into offline shopping isn’t the first tech-meets-traditional tie up that China’s witnessed in recent months. In November, long time Tencent frenemy Alibaba – along with Baidu and Tencent, one of the “Big Three” internet companies in China – agreed to purchase 36% of the Sun Art Retail Group Ltd.

With just a few months of 2017 left before Chinese New Year, the country is about to enter the year of the dog. Traditionally, the dog is a seen as a giving and compassionate figure in Chinese mythology. Nonetheless, with the various moves going on in China’s tech sector at the moment, 2018 could be more competitive than compassionate.


Disclosure

Dominion holds Tencent, JD.com, and Alibaba in its Global Trends Ecommerce Fund.


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