Tencent reported in-line 3Q19 results. Revenue grew 21% yoy to Rmb97,236m, 2% below consensus estimate. Non-IFRS net profit increased by 24% yoy to Rmb24,412m in 3Q19, in line with consensus. Gross margin was flattish yoy at 43.7%, slight lower than consensus estimate of 44.1%. Non-IFRS diluted EPS was Rmb2.55. We maintain BUY with target price lowered to HK$412.00.
KEY HIGHLIGHTS Results Kingsoft Corp (3888 HK/HOLD/HK$18.48/Target: HK$19.60) 3Q19: Top-line beat with improved operating margin; remain cautious on game performance. Link REIT (823 HK/BUY/HK$81.10/Target: HK$98.85) 1HFY20: Within expectations; special dividend sustains high DPU growth. Tencent Holdings (700 HK/BUY/HK$327.40/Target: HK$412.00) 3Q19: Fintech margin improvement drives margin recovery, strong deferred revenue growth. Update Anta Sports (2020 HK/BUY/HK$75.65/Target: HK$81.0...
KEY HIGHLIGHTS Economics Inflation Divergence in CPI and PPI inflation to widen ahead of Spring Festival. Trade Work in progress. Results AAC Technologies (2018 HK/SELL/HK$51.60/Target: HK$44.80) 3Q19: Improving but enough; downgrade to SELL. Update China Resources Cement Holdings (1313 HK/BUY/HK$9.00/Target: HK$9.69) Takeaways from ground visit to Guangxi. Tencent (700 HK/BUY/HK$327.20/Target: HK$416.00) 3Q19 results preview: Cautious on game revenue growth; Fintech to be the next gro...
Tencent will announce its 3Q19 results on 13 November. We remain cautious on game revenue in 3Q19. We estimate top-line growth of 25% yoy, with 10%/22%/57% yoy growth from online games, advertising and payment/cloud revenues respectively. We expect EPS growth of 17% yoy and net margin of 24% for 3Q19. We cut out target price to HK$416.00 from HK$423.00 to factor in the slowing growth of game revenue. Maintain BUY.
We expect investors to be caught in a tug-of-war between slower economic growth and trade war optimism in November. As substantial issues from the trade war will be unresolved post-phase one agreement, we see downside risk remaining. We prefer exposure to names with resilient earnings, and add Alibaba (BABA US), Changsha Zoomlion (1157 HK), Goldwind (2208 HK) and Tongcheng-eLong (780 HK) to our BUY list amid the expected earnings rebound.
As we continue to expect market volatility, we maintain exposure to names that have resilient earnings or are expected to enjoy an earnings growth recovery, such as Ausnutria Dairy (1717 HK), CSPC (1093 HK) and Dongfeng Motor (489 HK), and add PICC P&C (2328 HK) to our BUY list.
We expect equity markets to stay volatile in September, given the lack of progress on the Sino-US trade talks. Moreover, the global economic slowdown has deepened, bringing further pressure to corporate earnings. Hence, for the month, we add names that have more resilient earnings or are expected to enjoy an earnings growth recovery. These companies are Dongfeng Motor, Sany Heavy Equipment Int’l, Tencent Holdings, Tian Lun Gas Holdings and Wuxi Biologics.
China’s Internet sector delivered broadly solid 1H19 and 2Q19 results amid a mild margin recovery at the operating level, thanks to lower marketing investment. The online game segment saw a slight recovery amid tight regulations. The e-commerce segment recorded solid top-line and bottom-line, led by Alibaba and JD.com. For 2H19, we are positive on e-commerce with growth in top-line and bottom-line, and remain neutral on the online game segment due to tightened regulations. Maintain OVERWEIGHT.
Tencent will announce its 2Q19 results on 14 August. We expect a strong perfomance for game revenue in 2Q19. We estimate top-line growth of 28% yoy, with 19%/25%/57% yoy growth from online games, advertising and payment/cloud revenues respectively. We expect EPS growth of 17% yoy and net margin of 24% for 2Q19. Upgrade to BUY on recovery in growth from games segment and raise target price to HK$437.00 from HK$400.00.
KEY HIGHLIGHTS CHINA Sector Automobile 1H19 results preview; maintain OVERWEIGHT. Results TAL Education Group (TAL US/BUY/US$37.51/Target: US$41.00) 1QFY20: Results in line but 2QFY20 revenue guidance below estimates. Update Tencent (700 HK/BUY/HK$372.40/Target: HK$437.00) 2Q19 results preview: Recovery in games growth, upgrade to BUY. HONG KONG Sector Property 1H19 results preview: On track to meeting sales targets; prefer SHKP as top BUY. TRADERS’ CORNER ZTE (763 HK): Trading...
On our recent marketing trip, investors are positive on China’s Internet sector in view of industry consolidation and margin expansion but are concerned about de-rating risks due to the macro slowdown and China-US trade war. Our top picks are TCELIR and Alibaba. Maintain OVERWEIGHT on the sector.
Tencent reported in-line 4Q18 results with bottom-line beating consensus forecast by 5%. Total revenue was Rmb84.9b, up 28% yoy, in line with our estimate and 2% above consensus’. Non-GAAP operating margin fell 6.5ppt yoy and 1.6ppt qoq to 26% in 4Q18. Non-GAAP EPS of Rmb2.07 went up 13% yoy, 5% ahead of consensus, mostly on lowerthan- expected S&M and tax expenses. We maintain BUY with an unchanged target price of HK$418.00.
KEY HIGHLIGHTS CHINA Results Geely Auto (175 HK/BUY/HK$14.42/Target: HK$18.00) 2018: Net profit up 18% yoy, in line; earnings bottom out in 2H18. Tencent Holdings (700 HK/BUY/HK$363.00/Target: HK$418.00) 4Q18: Results in line; bottom-line beats expectations. HONG KONG Results CK Asset Holdings (1113 HK/HOLD/HK$67.20/Target: HK$68.35) 2018: Below expectations; growth dependent on M&As. Razer Inc (1337 HK/HOLD/HK$1.44/Target: HK$1.55) 2018: Top-line momentum continues; bottom line missed ...
Markets This Week: Stocks: Novartis (NVS); Allergan (AGN); Pfizer (PFE); XPO Logistics (XPO); Tencent Holdings (TCEHY); Walmart (WMT) Forex: EURNZD; USDSGD; NOKSEK; XAUJPY Rates: EDZ9; Bunds (GDBR10) Commodities: Brent Crude (CO1)
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