Avior Capital Markets - Tencent Holdings Ltd. (00700) Tencent | Tencents expansion pack

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Avior Capital Markets

Charl Wolmarans ...

Kevin Mattison

Tencent | Tencent's expansion pack

Tencent Q4 earnings were below its past eight quarter's average growth of 34%, with diluted non-GAAP EPS up 13%, which is a further deceleration from 15% in Q3'18. Trading at 29x forward earnings is a steep premium, for slowing growth rates, compared to other tech peers, including Alibaba at 27x and Alphabet at 21x. Low gaming growth (+2% y/y), which is now in the base moving into FY'19, and costs with moving into new business lines, principally cloud computing, caused the depressed earnings.

We expect gaming growth to remain slow in Q1'19 (Avior estimate: +4% y/y). However, we expect growth to accelerate from Q2'19 from the low 2018 base, as more games are approved (eight games have been approved post the commercial gaming approval restart). While gaming growth remains a short-term driver for profits, we believe gaming is close to saturation. We forecast a modest 15% CAGR growth over the next five years.

28/03/2019 14 EN

Underlying

Tencent Holdings Ltd.

Tencent Holdings Limited is an investment holding company principally involved in the provision of value-added services (VAS) and online advertising services. The Company operates through three main segments. The VAS segment is mainly involved in provision of online/mobile games, community value-added services and applications across various Internet and mobile platforms. The Online Advertising segment is mainly engaged in display based and performance based advertisements. The Others segment is mainly involved in provision of payment related services, cloud services and other services.

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KYG875721634 Hong Kong Stock Exchange Cayman Islands

Provider

Avior Capital Markets

Avior is a globally recognised capital markets research and trading firm, with the broadest research coverage within the region, with 100+ SA and 20+ SSA companies under coverage. Avior services clients from offices in London, Cape Town and Johannesburg.

Our research quality is consistently recognised in local and global surveys, with 18 analysts currently rated in their respective sectors (FM 2017). Value add through in-depth, innovative, high quality and consistent research with comprehensive underlying fundamental modelling supported by regular analyst and roadshow interactions.

Avior has proven that by working closely with our clients we can mutually develop dominant positions in certain sectors, going from strength to strength. Avior has a dedicated ESG team, having been ranked #1 in Corporate Governance research since 2008.

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Analysts

Charl Wolmarans

Kevin Mattison

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