Tencent invests $199 M into DHC Software affiliate in bid to expand cloud business

Chinese internet giant Tencent Holdings Ltd. recently revealed that it had an incredible first quarter in 2018, reporting net revenue of 73.5 billion yuan (about US$11.6 billion) and a net profit of 23.3 billion yuan (almost US$3.7 billion). The company’s revenue rose by 48 percent year-on-year while net profit was up by 61 percent for the same period. The sturdy performance allayed a lot of investor fears about the company’s spendthrift ways affecting its bottom line. Now, the company appears to be continuing its spending with a new RMB 1.27 billion (about US$198.7 million) investment in a Chinese software firm.

According to a report in China Money Network, a new security filing (in Chinese) by Beijing-based DHC Software Co. Ltd. shows that Tencent has made the investment in the company’s affiliate firm Beijing DHC Chengxin Computer Technology Ltd. in exchange for a 24.69 percent stake in the company. The investment comes little over a week after DHC Software and Tencent Cloud, Tencent’s cloud services division, signed an agreement for cooperation between their cloud divisions in healthcare, smart cities, logistics, and finance verticals.

DHC Software was co-founded by Xue Xiangdong in 2001 and quickly grew to become one of the largest computer software providers in China. DHC went public in September 2006 and has grown steadily since then. According to CrunchBase, the Tencent investment is the first time DHC has raised major funding in its 17-year history – no mean feat.

In a statement accompanying the investment announcement, DHC said that the fresh funds would be used for business development and joint investments with Tencent in the future. Under the agreement between the two companies, they will establish a lab to promote Tencent Cloud’s solutions for managing healthcare insurance, enable voice input for healthcare electronic records, and integrate Tencent Miying’s early cancer detection function and Tencent Cloud’s facial recognition interface in hospitals. Tencent will also partner with DHC Software to implement its smart city projects in various cities. The two will also co-develop an energy cloud lab.

Tencent is Asia’s most valuable company with an estimated market cap of US$580 million as of January 2018. Its many investments have focused heavily on the social network, music, web portals, e-commerce, mobile games, internet services, payment systems, smartphones, and multiplayer online games sectors, but the company is also steadily expanding into business verticals like cloud services and smart cities. The Beijing DHC Chengxin Computer Technology Ltd. investment will definitely go a long way towards Tencent’s ambitions of building a more varied and diverse portfolio while also building steady competition in Asia to the world’s leading cloud service providers like Amazon Web Services and Microsoft Azure.