TENCENT (HK: 700) dated 7 Sep 2021
Updated: Sep 12, 2021
Source: Tencent Interim Report 2021
Will Tencent’s (700.hk) income suffer badly from the gaming ban on children under 18?
Lo & behold, if you dig in a bit more you will realize that Tencent had all along been very compliant and cooperative to the Chinese government’s policy. As can be seen from the Chairman’s statement above, they had implemented measures even before the recent policy had been announced. Their revenue contribution from players under 16 only accounted for 2.6% of their gaming revenue. Even if we assumed 10% (instead of the 2.6% mentioned), based on our calculations, this still only amounts to a small 3% impact to Tencent’s total revenue!
You can see from the monthly chart (see Chart 1 below), using our proprietary indicators P/B, P/E and P/S Cycle Indexes, investors who bought into Tencent every time the 3 indexes fall to the Buy Zone, as indicated by the green arrows, were handsomely rewarded in the long run.
Technical analysis wise, we see Tencent breaking out above the neckline of an inverse Head & Shoulders formation. Its next short-term resistance zone is around HK$560-$600 region. (See Chart 2 below)
As usual, this writeup was broadcast to Clients on 7 Sep 2021 but posted here only on 8 Sep 2021.
*New update 12 Sep*:
Please find attached OCBC's research update on Tencent (700.hk) dated 10 Sep, for your perusal.
If you refer to our Tencent broadcast on 7 Sep, we had been more conservative than OCBC Research in setting the impact at of youth's contribution to Tencent's gaming revenue at 10%. OCBC continues to maintain 12-mth fair value target at HKD 635.
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Image source: www.reuters.com/world/china/china-rolls-out-new-rules-minors-online-gaming-xinhua-2021-08-30/