Tencent's publishing arm reads good potential in HK listing

Tencent Holdings Ltd's online publishing arm, China Literature Ltd, has filed pre-listing documents with bourse operator Hong Kong Exchanges and Clearing Limited, for a floatation that would raise funds for potential acquisitions and expand its mobile reading business.

The move underpins how Asia's most valued tech firm is using the burgeoning digital reading business to create synergies with its most profitable gaming segment, in a bid to grow the company into a full-fledged internet entertainment conglomerate, analysts said.

According to a prospectus lodged with the Hong Kong bourse late Monday, the country's biggest e-book company is being spun off from Tencent, which currently owns around 65 percent of the business.

Tencent said it seeks to retain at least 50 percent of China Literature after the spinoff and that the offering will consist of 15 percent of the firm's enlarged share capital. It did not disclose how much the deal could raise.

The online publishing subsidiary reported net profit of 30.4 million yuan ($4.47 million) for the twelve months ended December 2016, after posting a net loss of 354.2 million yuan in the previous year. That was its first profit posted since it began disclosing financial data in 2014.

China Literature－like Amazon.com Inc's Kindle Store is to the US－is China's dominant digital reading platform measured by scale and quality of writers, readers and literature offerings, according to consultancy Frost & Sullivan.

The platform now counts on its 175.3 million monthly users, of which over 90 percent are mobile, to either pay for premium content produced by its 5.3 million writers, or simply subscribe to a monthly plan to access its 8.4 million literary works.

Tencent kicked off its online reading business back in 2004, but it only grew exponentially after 2014 when it merged its own publishing unit with rival Cloudary Corp in a $729.6 million deal.

Mobile QQ, QQ browsers and Tencent News are among the key distribution channels for the reading unit to reach a broader base of audiences, who are most likely Tencent's gaming and social networking users, according to iiMedia Research CEO Zhang Yi.

The IPO documents highlight Tencent's ambitions to extend its lead as the country's connoisseur of online literature, in a listing which would also see a streamlining of its management, Zhang noted.

"Given Tencent's sizable businesses, keeping China Literature as an independent entity is easier for management," he said.