After three consecutive years of declines, Chinese technology company Tencent is expected to post gains in 2024. Tencent, known primarily for its gaming and social media businesses, is the largest stock on the index, with a market capitalization of more than $350 billion. Morgan Stanley equity analyst Gary Yu and his team said in a report on April 14 that the first quarter should be the “low point” for Tencent’s gaming business. (Down 3%) This was mainly due to weak domestic growth, but our previous expectation of an inflection point in the second quarter remains unchanged. The firm increased its holdings of Tencent shares with a price target of HK$400 (US$51). The stock is more than 30% higher than Friday’s closing price. Chinese authorities resumed approval of Tencent Games in late 2022, after a freeze of more than a year. When asked about the risks of the new restrictions in late March, management said regulators had made it clear they intended to “provide a healthy environment for industry development rather than restricting it”. That’s according to FactSet transcripts of the earnings call. Most of Tencent’s gains this year have come after its quarterly earnings report. The company’s other major revenue streams include advertising, fintech and business services. “In our (Asia ex-Japan Internet) equity coverage, given Tencent’s diversified Business model and profit expansion story, Tencent is our top pick Tencent’s share buybacks have also boosted analyst optimism on the stock, with Morgan Stanley’s Yu noting that Tencent has announced it will buy back at least $130 in 2024. billion, more than double last year’s buyback program, and yielding about 5%. The buyback offsets Prosus’ continued selling of its stake in the Chinese company to fund its own stock buyback program. Prosus is a company headquartered in the Netherlands and owned by Naspers, an early investor in Tencent. Liu Xialin, head of Internet and gaming research for Asia Pacific at HSBC, said in the report: “Based on Prosus’s current share issuance speed in the first quarter of 2024, Tencent will be in 2024.” The total repurchase amount for the year will be about 2 times the amount of Prosus stock issuance.” On April 16, the report said, “Since mid-January, Tencent has increased the daily repurchase amount from HK$500 million per day to 1 billion. HKD/day”. HSBC gave Tencent a buy rating and a target price of HK$385. The investment firm also expects Tencent’s gaming business to turn a profit soon, albeit not until the second half of this year. “While the inability to make buybacks during the lock-up period (one month before earnings) may put pressure on near-term share prices, the continued recovery in the gaming business and resilient growth in advertising, fintech and business services will help sustain earnings growth. Through Improve margins,” the HSBC report said. Tencent will release its first-quarter results on May 14. “I believe that we will definitely see more mature performance or behavior patterns, if you will, especially listed companies doing buybacks and dividends,” said Pan Grant, chief financial officer of Noah Holdings, a Chinese wealth management company. Accepted on Friday. He told me this during the interview. “The stock market used to be primarily valuation-driven,” he said. “But now I think people are actually not just looking for valuation, but the actual value of the company. They’re not looking for price-to-earnings ratios, they’re looking for profitability.” Hong Kong’s lower liquidity also affects the market, Poon said share price, but he hopes the arrival of a new CEO will improve the situation. Bonnie Chan, co-chief operating officer of Hong Kong Exchanges and Clearing Limited, will assume the role of head of the business at the end of May. Noah’s clients have also started asking for more information about Chinese investments in the past two to three quarters, Pan said, noting that prices are approaching levels where buying opportunities may be possible. —CNBC’s Michael Bloom contributed to this report.
