Hong Kong-based dot.com + IPO in 2000 = x or y, where x = disaster and y = success. Even John Nash would take four years to solve this formula. Anthony Tse was working in business development at Tom Group (then Tom.com) when it listed on Hong Kong’s Growth Enterprise Market (Gem) in 2000, just as the internet bubble was bursting. In mid-2001 he sat down with senior management and gave his candid opinion: ‘We have to get out in the market and clarify our situation.’
‘The market had changed, but so had the industry,’ Tse explains. ‘It was no longer viable to leave investors thinking we had merely an internet-based business plan.’ Tse subsequently found himself in charge of the company’s new IR department. At the time, Tom had next to no analyst coverage and only a handful of institutional investors. ‘We were a year and a half into our life as a listed company but we had to start from scratch,’ says Tse. ‘A lot of our acquisitions and business developments were not understood by the market. We had to deal with it.’
Tse took stock: just one analyst (BNP Paribas – an obligation as a sponsoring bank) and just a few million of Tom’s 3 bn shares in the hands of institutions. ‘The first thing we tackled was getting more research coverage,’ Tse recalls. ‘We knew if our performance and deliverables started to come in, the institutions would come along.’
Today Tom has around twelve sell-side analysts and more on the way. ‘When a broker initiates coverage, we don’t worry about the rating or the target price; it’s another opportunity to get our story out there,’ says Tse. ‘Many research houses are becoming a lot more specialized, and as a media company in mainland China – both specialized, growth areas – Tom serves as a gateway to how the market views the industry.’
‘Unfortunately, Tom had a dot.com name and it got caught up in all that horror,’ comments a Singapore-based analyst who has a close relationship with the company. ‘Since then it has reinvented itself via acquisitions into a media conglomerate. But it’s a complex beast and for most fund managers it’s too much hard work to look at Tom.’
Anthony Teoh, an analyst with South China Finance & Management, has covered Tom on and off. ‘But there have been so many acquisitions we’ve simply lost track – especially since the spin-off of Tom Online,’ he says.
‘Tom still needs to show clear profitability from all it has bought,’ agrees the Singapore-based analyst. ‘However, in terms of its results and investor relations, it does a very good job of clarifying and distilling operating performance, divisional dynamics and the divisional milestones it has achieved. Tom is still in an investment-phase dynamic, but after a couple of years without any major new acquisitions and when earnings start to look better, its credibility will be firmly established.’
Garnering awards
Tom has won best growth market company IR at the IR Magazine Asia Awards for the past three years. One analyst downplayed Tom’s win this year, saying, ‘No wonder. It’s one of the few Gem companies above its IPO price.’ Still, the awards are a direct reflection of the effort Tom puts into explaining the company.
Backed by Hutchison Whampoa chief Li Ka-shing, Tom Group’s public float is 37 percent, though the actual free float is around 27 percent with the rest in the hands of partner companies – and half of that is in institutional hands. ‘As our institutional shareholding has increased, the stock has become more fluid and gained more attention,’ Tse notes. ‘Liquidity and coverage have really come together this year.’ Tom’s institutional following was boosted by a $150 mn convertible debt issue in November 2003 after a HK$990 mn ($127 mn) equity offering in July.
From the start, Tom has subscribed to Thomson Financial’s sell-side research service. ‘It’s finding out how the market sees it,’ says Savoy Lee, Thomson’s North Asia analyst. More recently Thomson began analyzing Tom’s shareholder register each quarter. ‘We give it recommendations on who it should see on its roadshows,’ Lee continues. ‘It’s a starting point for targeting, though we haven’t begun a formal targeting program yet.’
Quarterly race
Hong Kong’s new main board listing rules backed off on quarterly reporting but Gem companies still have to announce results every three months. ‘The end-to-end reporting cycle is quite hectic but investors appreciate the transparency,’ Tse says. ‘Plus, it’s very helpful for the firm as it keeps us all on our toes.’
‘Quarterly results announcements make Tom more visible than a main board-listed company,’ says one UK-based broker. But quarterly teleconferences begun last summer have had few participants, which this broker attributes to the hitherto concentrated institutional shareholder base. With more institutions on the shareholder rolls, he expects conference call attendance to take off.
While 73 percent of Tom’s institutional ownership is overseas, it’s almost exclusively European. ‘European – and especially UK – investors have had a longer love affair with Asia,’ Tse explains. ‘They are more familiar with our markets, especially Hong Kong and China. Until recently US investors haven’t been as cosmopolitan.’
And perhaps Americans don’t have the patience to figure out Tom. As a media and advertising company with businesses in mainland China and Taiwan, and after 35 acquisitions and joint ventures, Tom’s is not an easy tale to tell. But Tse can easily reel it off. ‘Advertising in China is outpacing GDP by 100 percent,’ he says. ‘And it’s not just big multinationals placing ads. None of China’s top ten advertisers are multinationals; the fundamental growth comes from the locals.’
That covers 35 percent-40 percent of Tom’s revenues. Then there are content and subscription-based revenues, which are also growing. For example, part of Tom’s business is content delivered via mobile phone, and China has around 250 mn-300 mn mobile users – more than the entire US population.
Tse always had to struggle with investors’ knee-jerk reactions to the name Tom.com. ‘Investors remembered Hong Kong retail investors queuing in the streets to buy our IPO shares during the dot-com craze,’ he admits. ‘It took a lot of time for them to see the business underlying the name.’ Now he has an easier time with Tom Group, which was launched in February.
Hands-on
As well as being head of IR, in which he is assisted by senior manager Angela Chun, Tse is general manager of corporate development, reporting directly to the CEO, Wang Sing. Tse helps his boss with overall strategy and manages liaisons and strategic alliances. He’s also head of corporate research and recently became acting general manager of China Entertainment Television. Is he spreading himself too thinly?
‘No, investors and analysts like it that I’m involved in running the business,’ says Tse. ‘At other companies IR is little more than a communications function.’
Tse organizes his IR activities like clockwork: one annual trip to Europe – ten cities in two weeks; the US once a year – six or seven stops in two weeks; and Hong Kong, Taiwan, Singapore and Japan more regularly. ‘We also go to mainland China twice a year,’ he adds. ‘Not many companies do because their investment banks don’t take them but we organize those trips ourselves.’ Then there are Asia events like CLSA’s annual Hong Kong Investor’s Forum and JP Morgan’s Asian equity conference that draw investors from around the globe.
Recently Tom hosted a corporate day for its Taiwan publishing business, and Tse plans similar site visits for each of Tom’s divisions. ‘Sometimes investors see the message from head office as too polished,’ he says. ‘These forums let analysts and investors go down and talk to the line managers, see the company’s human face.’
A UK broker who has a longstanding relationship with Tom usually handles the UK leg of the company’s European roadshows. It says most of the interest comes from long-term, global investors and some tech-types who are buying into the convergence of media and telecoms. Then there are the Hutchison Whampoa investors looking for more of that Li Ka-shing magic.
After a roadshow the broker gathers feedback about Tom from its clients. For now the comments are usually: ‘too complex’, ‘too early’ or ‘interesting but would like to see results.’ It boils down to ‘complexity versus size.’ But complexity and criticism aside, the answer is ‘y’.
See the next issue of IR magazine for the story of Tom Online’s US listing, as told through the eyes of the Beijing-based IR team
See Tom go to America
In March Tom Group spun-off its internet division, Tom Online, with the first ever dual Gem/Nasdaq listing. The quiet debut, with the IPO just 100-times subscribed, contrasted sharply with Tom.com’s 1,250-times over-subscribed IPO in March 2000. Indeed, while it raised over $200 mn, Tom Online opened below its IPO price and failed to recover.
So why go for a dual listing for such a small deal? First, it gives Tom Group a foothold in the US, with 45 percent of the institutional demand coming from US investors. Second, Nasdaq has been the setting for stellar returns by competitors like NetEase, Sina and Sohu in the Chinese online business.
Tom Online’s investor relations is being handled from Beijing by a team of three, headed by executive vice president Elaine Feng.
Some commentators predict Tom will go on to spin off its mobile division, further cutting down the complex company into bite-sized chunks. ‘Then investors will be able to choose between the technology-driven businesses and the parent company,’ says one analyst.
