Tencent Holdings Ltd (0700)

[Wildreamz]

Tencent takes aim at Apple and Google app stores with WeChat mini program push
WeChat is now home to 580,000 apps which can instantly load on its platform, allowing users to bypass app stores
Josh Ye
PUBLISHED : Monday, 22 January, 2018, 2:05pm
UPDATED : Monday, 22 January, 2018, 4:43pm

http://www.scmp.com/business/article/212...ogram-push

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I was skeptical of WeChat Mini programs as a way to develop a full fledged, self-contained ecosystem. I may be wrong.

(Vested in Google and Tencent)

[holymage]

Based on my readings and discussions with Chinese users, Wechat is a kind-of full fledged, self-contained ecosystem. Wechat is part of the reason for Apple's slump in sales in China. Chinese users just need to access one app, instead of installing and accessing multiple apps, and at a lower price point.

Wildreamz,

Do you mind sharing your investment thesis on Tencent?
From my causal reading thus far, I do think Tencent still has potential for growth and a very strong moat. It is also likely that earnings growth may outpace the high valuation it carries.

[Wildreamz]

I have been vested in Tencent when the market cap was circa USD 200-250B and P/E 40-45, so my initial analysis is outdated. This includes my original Thesis:

Valuation:
Tencent has been growing top line at ~50% per year and bottom line at 30-40% per year in 2016. At a PE of 45 it had a forward P/E of 35 (assuming 30% bottom line growth), so it was a great entry price to me at that time. 

As of the most recent quarter it has a market cap of 570B and a net profit of USD8.43B (TTM) USD10.8B (run rate). which translate to a trailing P/E of 68 and 53. So the entry price now is definitely not as attractive, but note that growth also accelerated (Top Line Growth: 61%; Bottom Line Growth: 67%). And don't discount the possibility that they may be sacrificing near term profitability to maximise growth like Amazon and Netflix. 

Ref: https://seekingalpha.com/news/3312573-te...al-content

Quality of Company:
Tencent, like Alibaba, is a sprawling conglomerate with many moving parts. So it is hard to give a summation of parts analysis for me, and others have done a better job.

IMO, at the core Tencent has really cornered the technology sector in China (together with Alibaba). In terms of the IT sector (enterprise IT services, Cloud services), digital content delivery (games, digital download, digital content creation and streaming), social network (wechat, QQ etc.), become an integral part of Chinese commerce (Wechat pay), and Chinese life in general. They also own stakes in many important fledgling assets both in China (JD.com, Didi etc) and around the world (Go-Jek, Tesla etc.), which have potential of huge pay-offs (some already have).

There are much more hidden potential with Tencent that I cannot ever cover exhaustively (eg. I believe they will disrupt the Anime industry, which is exciting to me as a fan growing up). 

And since Tencent operates in a protected market, has the deepest pocket in that market, with the most talent, has established their brand name, owns so many asset with huge network effect: the technology sector (and increasingly, many traditional sectors like Financial Services, Media, Retail, Automobile, Logistics etc.) is just going to consolidate more among the big fishes (Tencent, Alibaba etc.).

Lastly, CEO Ma Huateng (Pony Ma) is a young visionary with strong software engineering background, who also happens to be an extremely effective leader (cultivates internal groups that competes with one another to produce the best version of products like Wechat) with a sound and sophisticated business model (they use the freemium model for most of their core products, achieving profitability very early on in the product cycle; they often sell stakes in their subsidaries at various stages of the companie's life cycle to diversify risks and to raise capital to fund more acquisitions and projects etc.). They also have a sound employee centric management style much like their western counterpart (Google, FB etc), a rarity among Chinese companies (they score a 4.4 on Glassdoor).

As such, I think it is a good long term hold for me, regardless of the market cycle.

Lastly a caveat: As you can tell, I'm very bullish on Tencent, and I see little risk or threat from competitions. The biggest risk (bear case) is by far the Chinese Government, who may make many unexpected move (like privatising the company, or impose strict regulations to stifle the growth of the company). The Chinese government will never let any private company become too influential or powerful in the long run.

[specuvestor]

I like the fact that Pony Ma is low profile and don't talk too much... just execute

I was at the tencent IPO launch. We were very skeptical why Nasper wanted to reduce stake which the IB said was the main reason for the IPO

Point is even Nasper couldn't figure that a QQ messenger that was like a copycat of ICQ IM evolved into what it is today. You have to admire their consistent and remarkably low key execution. People heard of Jack Ma but not Pony Ma

But the main difference between Nasper and TIH is that TIH sold out. Nasper looks genius now by those who doesn't know the reason for the IPO, but that's the beauty of execution, just like for our own investment. Like I always say: Mr Market doesn't require us to make binary decisions

[HitandRun]

The main difference (experienced by this user) between whatsapp and wechat is that I have never been spammed in wechat while I get spammed almost daily in whatsapp.

Are the Chinese that much better in terms of technical expertise? 

[Wildreamz]

The main difference (experienced by this user) between whatsapp and wechat is that I have never been spammed in wechat while I get spammed almost daily in whatsapp.

Are the Chinese that much better in terms of technical expertise? 

You got spammed in Whatsapp daily? I don't really. But Wechat is really full featured compared to Whatsapp. I wonder what is Zuck waiting for? (but they are testing extra features, like payments through whatsapp in India)

https://thenextweb.com/apps/2018/01/19/r...-in-india/

(vested in FB and Tencent)

[Wildreamz]

Tencent Revenue and Net Income History (USD):

[holymage]

Thanks for sharing Wildreamz,

From the general articles I read, it is consistent with your stand that Tencent has dominated many service sectors. I also think that Tencent is a good long-term holding, and its greatest risk comes from the Chinese government. Luckily, Tencent has compiled with the government views, say the restriction of gaming hours for minors after the Chinese government portrayed negativity regarding excessive gaming.

[Wildreamz]

Tencent, Alibaba has a good track record of navigating government policies; at the expense of sacrificing some moral high ground, and user privacy. Similarly, some western companies like Disney, Amazon, Apple, Microsoft and IBM also has good diplomatic leadership, and had found reasonable success in China.

This is a skill that not many western companies have. A good example would be Google and Facebook who got blocked in China. If they had been more flexible in the past, the current tech landscape would be vastly different.

[Wildreamz]

China’s Central Bank Hits Pause On Tencent Credit
http://supchina.com/2018/02/01/chinas-ce...nt-credit/

China’s central bank’s credit bureau questioned faith and trust of an entirely different kind today, according to Caixin: the department of the People’s Bank of China responsible for monitoring loans has told Tencent’s credit rating arm to pull a credit scoring service, just one day after its launch as a trial program, which we reported yesterday. Caixin cited a source that said “ongoing concerns about the misuse of credit and personal-credit information were the primary reasons that regulators issued the ‘window guidance’ to Tencent.”

Alibaba already operates a credit rating service, so it’s likely that Tencent will be able to jump through the regulatory hoops. Caixin said that “industry insiders” indicated that “the move was not surprising under the current regulatory environment,” noting that Alibaba’s Ant Financial Services Group “was reprimanded by regulators earlier this year for automatically enrolling users in a credit scoring program.”

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Relationship between Alibaba, Tencent with the Chinese Government, finally starts to sour? Or temporary setback?