Tencent Holdings Ltd (0700)

[learntoinvest2022]

Very insightful thoughts about Tencent.

Recently, I also did a short comprehensive analysis about Alphabet:
https://learntoinvests.com/tencent-stock-analysis/

Please let us know what are your thoughts about them, fellow value investors!

[CY09]

https://static.www.tencent.com/uploads/2...3567ce.pdf

Tencent has released their earning results and what does not look good is that gross margins have fallen and earnings from its listed subsidiaries like Tencent Music, Huya have slowing profits or are now loss making due to China's regulations on them.

Coupled with the Tech Bust, it does not seem Tencent will be able to sell down stakes at high values unlike 2020 and 2021. Stripping off gains from disposals, it seems Tencent earns 6.4 RMB or about 7.5 HKD per share annualised based on its few latest quarter results. At current price of 351HKD, that is a very expensive P/E of 46 for Tencent (its 5 year average is about 35x). Unless Tencent is capable of continuously monetizing its investments every quarter with sales, I think any new quarter results is a downside risk due to declining profits.

Once the sales from assets dry off, it is possible to see Tencent declining to low HKD 200.

[Wildreamz]

Tencent profits plunge as Chinese tech giant grapples with Covid lockdowns, regulation
https://www.cnbc.com/2022/05/19/tencent-...weigh.html

Almost every reason behind their revenue/profit decline can be traced back to regulation of sorts (decline in gaming license, COVID regulation etc.)

So, I guess the CCP's strategy of neutralizing potential threats is working? On the bright side, at least there are "supportive signals" from the CCP, as the article noted. I personally will not hold my breath for them, until regulatory actions proved otherwise.

(personal speculation of their intentions; not vested)

[CY09]

https://mothership.sg/2022/06/taiwan-fla...d-top-gun/

Because of nationalism, tencent lost a good business opportunity on hindsight as Top Gun has become one of the star movie performer this year. If China is insistent on being nationalistic and want policies acting at its leader will while hindering the animal spirit in China, it is highly likely Tencent, Alibaba and the rest are going to miss even more opportunities.

As of now, tencent operating margins are falling off the cliff with profits halving.

[fallscushion]

And…. who doesnt know that by now?
It seems to me anything about China Tech Companies or China Co in general are bad, negativities are extrapolated and pessimism are like what the sound in cinema says..ALL AROUND you.

Simply love to fish in such unloved ponds.

[¯|_(ツ)_/¯]

I think it's quite clear what the China Government is aka they had never pretended that they are not Communist.

They are Communist and that's how they wanted their society and their business to behave like one too.

The creativity and innovation energies must be aligned to the greater good otherwise, why should they exist at all?





Gratitude 

[CY09]

If so, tencent is going struggle in growing profits. Its margins have been reduced due to policies. What is propping its net income are asset sales and revaluation gains from such sales.

Without asset sales, Tencent is about 60 times P/E. It is an expensive stock with little growth

[¯|_(ツ)_/¯]

Sorry, CY, I'm not referring specifically to TenCent - just in general that if one is to invest in China stock (market), then one had to understand what the Communist vision and mission.

Having says that, TenCent is definitely a good stock - the question is more of the right entry price.

What I meant was - TenCent is rather unique and has a visible moat at this moment.  Given the right price, I will definitely buy TenCent and my holding period will be FOREVER! 

Side track a bit - as the (price) volatility, especially China Tech stocks is still a real concern - might be a better investment strategy now is to buy the bucket - HSTECH?

---

BTW, I had been benefited from all your posts here and I wish you a fruitful journey.  Remember, the time horizon should be 10 or 20 years.

A stock is only worth investing/investigating if it's business should exist in 10 or 20 years.  TenCent is one of them. 

Lets's watch what Alvin says about TenCent 1Q22 Result:


Gratitude 

[Choon]

If so, tencent is going struggle in growing profits. Its margins have been reduced due to policies. What is propping its net income are asset sales and revaluation gains from such sales.

Without asset sales, Tencent is about 60 times P/E. It is an expensive stock with little growth

I would not say that Tencent is 60X PE even after stripping out revaluation gains from its net income.

Based on (see attached image)
(i) share price of HKD363; 
(ii) valuing its investees at book value;
(iii) core FY2021 PATMI of RMB124B;
I obtained PE of 17X.

Point (ii) may be a controversial point. Why assign a value to investees? 

First, because these investees are not contributing to PATMI at present. But yet there is a value to them as evidenced by some of them being listed and having a market cap to them.

Second, I see Tencent investees differently from Ali investees. Ali's investees, I feel, may be loss-leaders for Ali, their role is to be loss-making to protect Ali's flanks, to protect Taobao and Tmall. I would thus not assign any value to Ali's investees whe i value Alibaba. Tencent's investees however are different. Tencent does not need these investees to protect Wechat. Instead it is Wechat that strengthens these investees. 

Third, then it is about what value is placed on Tencent's investees. I think many analysts will use market value (e.g. based on latest share price). For me I take book value. Of course if one wants to be more conservative, one can also chose to take a 50% haircut of book value.

[attachment=1834]

[Wildreamz]

Tencent pulls plug on Twitch-like platform Penguin Esports as regulators freeze out the social media giant from new gaming licences 

*The six-year-old Penguin Esports game streaming site ended operations on June 7
*Tencent was left out of the new batch of 60 online gaming licences issued by the regulator on Tuesday

https://www.scmp.com/tech/big-tech/artic...ors-freeze