TENCENT (HK: 700) dated 4 Apr 2023
Image source: verdict.co.uk
TENCENT, 700.hk, 2-year Chart
Tencent is arguably the most influential internet firm in China as one can hardly go by a day without using its products. Tencent is the world's largest video game vendor and owns the world's top-grossing mobile game - Honor of Kings. Tencent also runs China's largest social media super app - WeChat. The app is now part of the fabric of life for Chinese people who use it to chat, shop, watch videos, play games, order food and taxis, and more. Equally as impressive as its own portfolio, Tencent is also among the world's largest venture capital and investment corporations. The firm is now one of the largest shareholders in leading tech companies like Meituan, JD, DiDi, Snap, PDD, Kuaishou, Epic Games, and more.
Since China ditched its zero-covid policy and cited its pro-economy stance, Tencent’s share price had almost doubled from its low of $190 in November 2022 to a high of $415 in January this year. On 22 Mar 2023, it reported surprise profit growth, lifted by digital-ad recovery. Management had declared 2022 final dividend of HK$2.40 per share vs HK$1.60 per share in 2021. In case you aren't aware, since 2010, Tencent had increased its dividend payout by 24x.
From the Chart, Tencent is sporting an immense bullish Inverse Head & Shoulder Formation, similar to the Hang Seng Index (HSI). This should not come as a surprise since Tencent's weighting in HSI is close to 9%, so HSI's fortune is inextricably linked to Tencent.
Its current price action is hanging just right there at its breakout neckline. An authoritative break out northwards will suggest a pattern-implied target of $595.
The pattern implied target price is slightly higher than most of the Investment Banks' newly upgraded fundamental price targets. Pls see below for a compiled list of new price targets (price on the right side), together with the Investment Banks' headline reasons for upgrade:
Citigroup│Buy│496->520 Nomura│Buy│510 CLSA│Buy│500 BofA Securities│Buy│474->496 Haitong International│Outperform│487 CICC│Outperform│475 Credit Suisse│Outperform│461 UBS│Buy│460 Jefferies│Buy│456->460 Macquarie│Outperform│453 Morgan Stanley│Overweight│450 Goldman Sachs│Buy│434->447 HSBC Global Research│Buy│440 CCB International│Outperform│400.9->423
Brokers│Headline Views Citigroup│On track to deliver stronger sustainable growth and shareholder returns Nomura│Quarterly revenue in line with estimate-missing earnings CLSA│Growth resumed BofA Securities│Multiple growth engines to propel growth and expand profit margins Haitong International│Businesses expected to regain acceleration momentum this year CICC│Significant growth recorded; crucial to capitalize on recovery momentum Credit Suisse│Quarterly results in line; full-fledged development expected across all business segments this year UBS│Revenue and earnings recovery driven by product monetization Jefferies│Rating reiterated at Buy based on multiple upcoming business growth drivers Macquarie│Poised to hail growth Morgan Stanley│Outlook positive across all business segments Goldman Sachs│Quarterly results beat with strengthened visibility on earnings acceleration HSBC Global Research│Recovery in game and advertising segments further confirmed CCB International│Selected as sector top pick based on its solid performance
Lastly, there is an important catalyst to note, known as the 'Golden Shares' initiative:
https://www.reuters.com/technology/china-moving-take-golden-shares-alibaba-tencent-units-ft-2023-01-13/ Tide looks to be turning for China’s tech giants when it is recently reported in January that China’s Cyberspace Administration had purchased “Golden Shares” in Alibaba (9988) and its rumoured to have plans to do the same for Tencent (0700) as well. “Golden Shares” are shares that grant special voting rights and in this case, give the Chinese regulators a board seat in the tech giants. To the Western economies, this may seem like a negative to have government poking around their businesses. But in China context, this is good news as it aligned the interest of the Chinese government with the companies. Especially for Tencent, which requires the regulators to grant them the licenses necessary for its businesses.
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