HK shares of Tencent and peers helped by acquisition moves

HONG KONG Mon Feb 17, 2014 2:42am EST

HONG KONG Feb 17 (Reuters) - China's Hong Kong-listed Internet stocks are riding high thanks to an investment frenzy by Chinese tech companies as core players spend to build the foundations for future growth.

Tencent Holdings Ltd, China's social networking and video games superstar, which is trading at an all-time high with a market valuation of $131.8 billion, was up 5.3 percent in mid-afternoon trading on Monday.

Beijing-based Kingsoft Corp Ltd, a software development company with a market cap of $3.7 billion, surged 7.2 percent, set for its biggest gain in four months.

The jump came after last week's announcement that Xiaomi Ventures, the investment arm of smartphone maker Xiaomi Tech, paid $20 million for a 4.7 percent stake in Kingsoft's online and mobile games subsidiary Westhouse.

Chinese video game company NetDragon Websoft Inc and business software firm ChinaSoft International Ltd were also up 10.39 percent and 3.88 percent respectively. The Hang Seng Index was up 1 percent.

Tencent's gain came as speculation mounted in various mainland China and Hong Kong media that it would make a $400 million investment for a 20 percent stake in Chinese restaurant-review site Dianping. Officials with Tencent and Dianping declined to comment.

Tencent shares are now up more than 16 percent on the year, versus a 3.3 percent loss for the Hang Seng Index. In 2013, Tencent shares surged 99 percent as the Hang Seng benchmark barely rose 3 percent.

Tencent shares are now trading at 38 times forward 12-months earnings, a 40 percent premium to their historical median, according to Thomson Reuters StarMine.

Tencent is expanding its social media empire beyond messaging, games and stickers to encompass more smartphone location-based services. The company already operates the hugely popular mobile messaging app WeChat, or "Weixin" in China.

Tencent wants to allow people to use their smartphones to interact with their surroundings and do things like buy goods through WeChat Payment, Tencent's mobile payment platform, and use the Didi Dache app, which it has a stake in, to book taxis.

A Tencent investment in Dianping would fit with this strategy as China's Internet firms compete in an online land grab for investments that can improve their location-based services.

Other companies making acquisitions include Alibaba , which last week offered to buy digital map firm AutoNavi Holdings Ltd. In January Baidu Inc bought Renren Inc's remaining stake in Nuomi, a Chinese group buying service similar to GroupOn Inc .

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