Why Investing in Tencent, can be Lucrative for Growth Investors

Dear PGM Blog reader,

In this weekend blog article, we want to take the opportunity to discuss with you, why Investing in Tencent, can be lucrative for growth investors.

INTRODUCTION:

Tencent Holdings Limited is a Chinese multinational investment holding conglomerate, incorporated on November 19, 1989, and headquartered in Shenzhen, the People’s Republic of China.

The company, provides Internet value-added services (VAS) and online advertising services in Mainland China, Hong Kong, North America, Europe, other Asian countries, and internationally.

The company operates through VAS, Online Advertising, and Others segments, and offers online games, community VAS, and applications across various online platforms; online advertising services, such as delivery of pay-for-click, pay-for-download, etc., as well as display based advertising; and payment related, cloud, and other services for individual and corporate users.

The company also develops software; develops and operates online games; and provides information technology, asset management, online literature, and online music entertainment services.

Tencent has been credited as one of the world’s most innovative companies by numerous media and firms, including Boston Consulting Group.

The company has a primary listing on the Hong Kong Exchange under the symbol 0700.HK, and at the close of the market on Friday, July 6, 2018, the company had a market value of US$466 billion (HK$3.68 trillion), and is Asia’s most valuable company.

PRODUCTS & SERVICES:

Tencent is the world’s biggest investment corporation, one of the largest Internet and technology companies, one of the biggest venture capital firms, and the largest and most valuable gaming (Tencent Games) and social media company.

Its many services include social network, music, web portals, e-commerce, mobile games, internet services, payment systems, smartphones, and multiplayer online games, which are all among the world’s biggest and most successful in their respective categories.

Tencent controls hundreds of subsidiaries and associates in numerous industries and areas, creating a broad portfolio of ownerships and investment across a diverse range of businesses including e-commerce, retail, video gaming, real estate, software, virtual reality, ride-sharing, banking, financial services, fintech, consumer technology, computer technology, automobile, film production, movie ticketing, music production, space technology, natural resources, smartphones, big data, agriculture, medical services, cloud computing, social media, IT, advertising, streaming media, artificial intelligence, robotics, UAVs, food delivery, courier services, e-book, internet services, education and renewable energy.

PGM CAPITAL ANALYSIS & COMMENTS:

Tencent is the largest company in China by market valuation, currently near US$ 500 billion. It is also China’s largest provider of online music, video and literature, and has the largest mobile web browser and app store in China.

Tencent WeChat mobile platform, which has more than 1 billion users.

WeChat is a multipurpose messaging and social media app. It also serves as a payment system, with numerous other functions and platforms.

Q1-2018 Financial Results:

On May 16, 2018, the company reported its Q1-2018 financial results with the following highlights:

  • Total revenues were RMB73,528 million (USD11,693 million1 ), an increase of 48% over the first quarter of 2017 (“YoY”).
  • Operating profit was RMB30,692 million (USD4,881 million), an increase of 59% YoY.
  • Operating margin increased to 42% from 39% last year.
  • Profit for the period was RMB23,973 million (USD3,812 million), an increase of 65% YoY.
  • Profit attributable to equity holders of the Company for the quarter was RMB18,313 million (USD2,912 million), an increase of 29% YoY.

Below chart shows the all-time performance of the shares of Tencent.

Investments done YTD:

In January 2018, Tencent and The Lego Group, the world’s largest toy company, are teaming up to jointly develop online games and potentially a social network aimed at children.

In March 2018, Tencent acquired a 5% stake in Ubisoft from Vivendi, and in May 2018 it acquired a majority stake in the New Zealand company Grinding Gear Games, the developers of the game Path of Exile.

Based on the above we have initiated our coverage of the shares of Tencent, with a STRONG BUY rating.

Last but not least, before taking any investment decision, always take your investment horizon and risk tolerance into consideration and keep in mind that; share prices don’t move in a straight line, that Past Performance Is Not Indicative Of Future Results and that technology stocks and stocks of emerging markets, experience a higher volatility than the ones of develop market big-caps.

Yours sincerely,

Eric Panneflek

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