Tencent slashes wager on stock that soared 684% in edtech frenzy

TENCENT Holdings slashed its stake in a Chinese education technology firm that staged an eye-watering rally in the past 2 weeks, as investors debate whether the sector's surge is sustainable.

The mobile gaming giant reduced its holdings in Koolearn Technology Holding to 1.6 per cent from 9 per cent, according to Hong Kong Exchange filings. Koolearn surged 684 per cent in just 9 trading sessions through Jun 16, as its foray into live streaming e-commerce created social media buzz and market excitement after the sector was knocked down in Beijing's sweeping tech crackdown last year.

"This is a very negative signal for those who speculate on such theme, especially as Tencent has sold such a major portion," said Steven Leung, executive director at Uob Kay Hian (Hong Kong). It is "too early" to call Koolearn's transition to live streaming business a viable option for other education names, he added.

Tencent said it sold Koolearn's shares on Jun 15 and 16 at an average prices of HK$9.62 and HK$9.68, respectively. The stock was up 7.9 per cent to HK$18.32 as of 9.59 am Tuesday (Jun 21), regaining some ground after a 2-day drop of 41 per cent.

Koolearn and its parent New Oriental Education & Technology Group led a surge in edutech stocks this month, as traders bet the combination of live streaming, teaching and e-commerce may enable a turnaround of the beleaguered sector. Video clips of Koolearn's tutors selling agricultural products while teaching English via online platforms have gone viral, spurring the rally.

Some analysts view Tencent's reduction as part of its shift to lower exposure in areas that are subject to Beijing's regulatory clampdown.

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"I think it is quite reasonable for Tencent to optimise its investment portfolio and book some profits," said Redmond Wong, market strategist at Saxo Capital Markets.

Yet worrying signs are growing for the sector. China's state-run Farmer's Daily on Monday called on live streaming platforms to share more profits with peasants.

"I don't know whether their businesses are sustainable. Most of the rally might be driven by retail investors," said Kenny Wen, head of investment research at KGI Asia. "For the stocks that surged lately, I'm very cautious." BLOOMBERG