Yonghui shares rally to daily limit as investors cheer Tencent’s deal to buy stake in supermarket chain

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Yonghui shares rally to daily limit as investors cheer Tencent’s deal to buy stake in supermarket chain

Shares of Yonghui Superstores jumped by the daily limit of 10 per cent within half an hour of the start of trading on the Shanghai bourse on Monday morning after Tencent Holdings agreed to buy a 5 per cent stake worth 4.22 billion yuan (US$639 million) in the Chinese supermarket chain last week, upping the ante against Alibaba in the bricks-and-mortar retailing scene.

The shares, trading in which was halted since December 8, surged to 10.76 yuan, half an hour into the day’s session, reflecting huge confidence from investors in the firm.

The shares eventually gave up some gains, closing 5.6 per cent higher at 10.3 yuan. They have now risen more than 100 per cent since last December.

In the process the supermarket operator’s market capitalisation reached about 103 billion yuan, joining electronics retailer Suning Commerce Group to become the only other company in the retail segment with a market cap of more than 100 billion yuan on the mainland’s bourses.

“The company has the potential to boost its profits by ten fold in the medium to long term, because of the advantage of core competitiveness and strong capability of standard replication,” Wang Junjie and Wang Haozhe, analysts at Shenwan Hongyuan Group, said in a note. The brokerage has set a price target of 14 yuan for the stock, representing 50 times Yonghui’s estimated earnings for 2018.

Last Monday, China’s technology behemoth Tencent agreed to buy 478.5 million shares in the retailer at 8.81 yuan a piece.

The investment comes after another Chinese technology heavyweight Alibaba Group Holding, the owner of the South China Morning Post, announced in November its US$2.9 billion purchase of a stake in Sun Art Retail Group, a Chinese grocery supermarket chain, which was deemed by analysts as a move by the e-commerce giant to expand its operations to offline channels, to find new growth engines for its online business amid a slowing China economy.

Sun Art Retail now trades at HK$8.12, adding 18 per cent since last December on the Hong Kong bourse.

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