Yonghui Superstores:Tencent to invest 5%in Yonghui and 15%in Yonghui Yunchuang

On 11 December, Yonghui announced to sell 5% stake to Tencent (0700.HK, lastclosing price: HKD394). The details are yet to be confirmed.

    Tencent will also invest in Yonghui Yun Chuang, a subsidiary of Yonghui listcothat mainly includes Super Species and Yonghui Life. With this investment,Tencent expects to own a 15% stake in Yonghui Yunchuang.

    Given that the discussion is still at an early stage and uncertainties remain,Yonghui will remain suspended from trading from 12 December; however, thecompany has assured to confirm the details and resume trading before 18December 2017.

    Deutsche Bank view.

    The deal implies Tencent’s plans to further explore both online and offline retailmarkets, apart from the partnership with Jingdong; despite that the details of thepartnership are yet to be formed.

    Yonghui’s Super Species and Yonghui Life can also leverage Tencent’s large onlinecustomer base to extend their online and O2O presence. Please refer to our reportSun Art and Yonghui - A new wave of partner-seeking in a new retail environmentpublished on 8 December 2017 for further details. Currently, Yonghui owns 52%,CTGEI under Capital Toady owns 12%, Chairman Mr Zhang Xuanning owns 12%and co-founder Mr Peng Huasheng owns 24% of Yonghui Yunchuang . After theinvestment, we believe Yonghui Yunchuang will potentially become an associateof Yonghui listco (owning <50% stake).