Tencent Holdings Ltd (0700)

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Huawei’s sales freefall slows as cloud business expands
https://www.ft.com/content/f537a945-cc31...e35d826166
Quote:Huawei’s cloud computing arm has successfully beat competitors, including Jack Ma’s ecommerce group Alibaba, to win cloud contracts.

Alibaba and rival Tencent draw about half of their cloud sales from providing services to China’s internet companies, which are struggling under the weight of Beijing’s tech crackdown.

“Huawei’s relationship with the government is really good, which helps them win business,” said Zhang. Huawei is also one of the top vendors providing private cloud services, a more highly customised segment of the market often preferred by the country’s lumbering state-owned enterprises and local governments. While Huawei’s political favour in China has helped buoy the company, the group’s ties to Beijing pose problems abroad.

Another data point.
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
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Tencent has just released their second quarter 2022 results. Lets revisit its sum of parts.

As at 30 Jun 2022, the fair value of its shareholdings in listed investee companies (excluding subsidiaries) was approximately RMB602 billion (USD90 billion). In terms of per share value, 90bil usd is around HK$75 per share.

During the conference call, Martin Lau the president of Tencent mentioned:

"In addition to that, we have unlisted our private investment portfolio where the book value is over USD 50 billion. And we believe there's been substantial appreciation on that over $50 billion book value. And we also look for opportunities to return capital from that private investment portfolio in the form of dividends, distributions and buybacks.

So I think if you add all of the above, the annual free cash flow in the teens billions of dollars, the listed and unlisted investments in excess of $150 billion, then you'll see that we have substantial ammunition relative to our $370 billion market cap to continue doing dividends and buybacks at an aggressive rate. In terms of what are the lessons we have learnt from the JD distributions, then I would say that we've learned how to process some of the logistics efficiently, which is good. Means we can do future such distributions or sales more rapidly. We've also developed our ability to manage relationships around those transactions and demonstrate that while we have sharply reduced our stake in JD as an example, we continue to have a very good business relationship with JD and also with Sea on an ongoing basis. And then finally, I think our investors have responded quite favorably to the dividends and distributions. And that encourages us to think about how to continue down that capital return path going forward. Thank you."

The book value of their unlisted private investment portfolio is over 50bil usd, he then continued to clarify that their listed and unlisted investments are in excess of $150bil usd. This works out to a per share value of HK$124.

HK$75 for listed and HK$49 for unlisted. He believes there is substantial appreciation of their unlisted investments, so the value will likely be much more than 50bil. We use 50bil to be conservative.

He also hinted on potential of continuing to give value back to the shareholders in the future, by unlocking these investments.

Cashflow perspective, a very clear improvement from last quarter. Substantial improvement in free cash flow due to capex reduction and slightly stronger operational cashflow.

Both operating profit and margin have been sequentially improving for 3 straight quarters. Since their core businesses are synergistic, we can value them as one. If we annualize their 2Q2022 operating profit and base it on the last traded price, their core business on a per share value will work out to be HK$178, which is around 10x multiple(ex all listed and unlisted equity investments).

If there is any error on my valuation do let me know thanks!

full article here: http://scg8866tstockinvesting.blogspot.c...wNjTHZBzMY
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https://www.scmp.com/tech/big-tech/artic...tech-giant

Pony Ma explains Tencent’s vision for the future of the internet as Chinese tech giant searches for growth

Quote:*Tencent CEO Pony Ma Huateng first coined the term ‘quanzhen internet’, or ‘immersive convergence’, in the company’s annual brochure in 2020

*Tencent said ‘immersive convergence’ can help solve practical issues in real-life scenarios, suggesting a focus on commercial applications

Recommend to read the whitepaper. It's quite different from the Meta's "Metaverse".
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
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Deep rooted cultural issues?

Tencent billionaire seethes as empire starts to crack

He upbraided the bread-and-butter gaming division for frittering away money to acquire users for hastily-released titles, rather than focusing on quality. Attendees said he also accused employees of “superficial” reforms to spending and costs. They added that he even said corruption remained rampant across the ranks, without elaborating.

In addition, Tencent’s relatively-nascent cloud arm was accused of a wasteful market-share grab against Alibaba and Huawei, though Ma acknowledged that it had corrected course quickly.

But he reserved his harshest comments for the company’s ageing social network and content empire, which was losing ground to mobile-native rivals such as ByteDance, the Chinese owner of TikTok.

https://www.businesstimes.com.sg/interna...arts-crack
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I dont understand why he would lash out against bytedance. It is operating at negative margins. Yes, with scale, it may reap operating leverage, but to turn around a negative -8% net margin is difficult

https://musically.com/2022/10/07/bytedan...inancials/

On one hand he complains against market share grab fighting Alibaba/Huawei; on the other he wants market share grab fighting bytedance. My preference for any company executive is to do your job, operate at the lowest positive net margin, no doubt a larger competitor may exist operating at negative margins but eventually they would collapse. Does Singapore have an example of this which has run towards the end of its fairy tale? The answer is yes- The story of Yongnam and TTJ

TTJ was the much smaller company in the same steel space as Yongnam. Yongnam was the larger, always obtaining the well known construction projects in Singapore, undercutting rivals and operating at negative margins. It took 15 years of this management stupidity until Yongnam is on the brink of financial collapse with share prices cratering 97%.
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(26-12-2022, 11:09 AM)CY09 Wrote: I dont understand why he would lash out against bytedance. It is operating at negative margins. Yes, with scale, it may reap operating leverage, but to turn around a negative -8% net margin is difficult

https://musically.com/2022/10/07/bytedan...inancials/

On one hand he complains against market share grab fighting Alibaba/Huawei; on the other he wants market share grab fighting bytedance. My preference for any company executive is to do your job, operate at the lowest positive net margin, no doubt a larger competitor may exist operating at negative margins but eventually they would collapse. Does Singapore have an example of this which has run towards the end of its fairy tale? The answer is yes- The story of Yongnam and TTJ

TTJ was the much smaller company in the same steel space as Yongnam. Yongnam was the larger, always obtaining the well known construction projects in Singapore, undercutting rivals and operating at negative margins. It took 15 years of this management stupidity until Yongnam is on the brink of financial collapse with share prices cratering 97%.

Hi CY09.
The economics for businesses with (almost) zero marginal costs of production are quite different with brick-mortar. Hence the TTJ-Yongnam comparison might not be applicable.

Platform based businesses with (almost) zero marginal costs of production are guaranteed to compete in a death match, as not being number one-two means low survival odds. And the upside of been number one-two means you will capture almost all the benefits. As such, grabbing market share even at the expense of losing money, makes a lot of sense. But as usual, the Tragedy of the Commons occur as everyone with a bazooka does the same thing. Eventually, the wheat will be separated from the chaff.
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It's interesting how unloved the China tech companies are at the moment.
Tencent market cap of about USD390B is less than 15% of Apple's and even lesser than Visa of USD500B. almost the same as Master's USD380B.

Tencent 2023-Q2 result:
https://static.www.tencent.com/uploads/2...d667ef.pdf

Although Games revenue has been stagnant from 2021 till 2023-Q2, with new games not performing well although more exciting pipelines are coming (eg: Black Wukong, Valorant in China etc).
But looking back at how tough the regulatory environments were since 2021, their result is respectable.
The regulatory is now back to be backing them instead of smashing them (guess it'd take a long time to rebuild the repo after you hit people in the face).

The Ads revenue is growing again, it's usually the canary of the economy turning corner.
The Fintech Biz revenue is also growing again, faster than my expectation as the regulatory issues were concluded with the fine to Tenpay.

Tencent future, to me, is getting far better and yet its price is still languishing in low point.
IMHO, this provides 2 advantages to Tencent shareholders:
1) Ample time for shareholders to build up their stakes with chances to pick up when price dropped substantially (there are many such sessions).
2) Buying back undervalued shares, which they have been doing well by fetching substantial shares below HKD400 (partly thanks to Prosus).

<vested, core>
My views are your Gilbert & Sullivan's:
"The flowers that bloom in the spring, have nothing to do with the case".
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(26-08-2023, 11:13 AM)ksir Wrote: It's interesting how unloved the China tech companies are at the moment.
Tencent market cap of about USD390B is less than 15% of Apple's and even lesser than Visa of USD500B. almost the same as Master's USD380B.

.....

IMHO, this provides 2 advantages to Tencent shareholders:
1) Ample time for shareholders to build up their stakes with chances to pick up when price dropped substantially (there are many such sessions).

<vested, core>

Same case for Alibaba...

https://www.valuebuddies.com/thread-5110...#pid167845
" To give you a gist of how low Chinese tech companies are valued now. Nvidia churns out 4-5bil usd of fcf in a year, Alibaba churns out 12bil usd fcf in a quarter(3 months) yet Nvidia's market cap is 2.5x that of Alibaba. "

Taking the more positive regulatory environments into consideration, I think questions wld still be : the best methodology to work out the fair market value of Tencent ? the appropriate discount factor to use(probably smaller as a result but by how much), basing on US tech ?
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https://www.straitstimes.com/business/te...ming-curbs

Tencent sheds $56 billion as China unveils latest gaming curbs

Quote:HONG KONG - China unveiled a raft of new measures to rein in spending and content in online games, signalling the start of another industry crackdown that wiped out roughly US$42 billion (S$55.8 billion) of Tencent Holdings’ value.

..
“If you buy a business just because it’s undervalued, then you have to worry about selling it when it reaches its intrinsic value. That’s hard. But if you can buy a few great companies, then you can sit on your ass. That’s a good thing.” - Charlie Munger
Reply
(22-12-2023, 05:24 PM)Wildreamz Wrote: https://www.straitstimes.com/business/te...ming-curbs

Tencent sheds $56 billion as China unveils latest gaming curbs

Quote:HONG KONG - China unveiled a raft of new measures to rein in spending and content in online games, signalling the start of another industry crackdown that wiped out roughly US$42 billion (S$55.8 billion) of Tencent Holdings’ value.

..

Wow Tencent managed to scoop up 1Billion in share buyback today instead of the usual 0.4B. I reallocated some of my capital to Tencent mainly and secondly some to NetEase as well. Haha. After the draconian Education sector saga, any heavy drop of feet would scare the birds away. Flee flee flee....

Tencent is not only china games, although it still occupying a big portion of their revenue. BUT, wipe out US$42B? lolx. Hopefully more of scared birds rushing for exits. It is the anxious moment when you wish it drops more but yet a bother to find capital to switch over. Big Grin

After bought Baba in recent times, I cut half to switch to Tencent. 
There goes my efforts these few weeks haha. But alas, quite happy with the switch !!
I still got half Baba and I don't really mind switching over!

<major holding in Tencent>
My views are your Gilbert & Sullivan's:
"The flowers that bloom in the spring, have nothing to do with the case".
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