Tencent Recently Experienced a Correction


ADR shares: TCEHY has fallen by 14.4% from its peak

(A correction usually indicates a fallen price of 10% from peak)

Tencent, HK$3.9 trillion Chinese tech giant, did not escape the recent market price drop. The 19-year-old largest and most valuable gaming and social media company in the world is expected to report its fourth quarter and full year results in March.

Meanwhile, Tencent delivered a stellar 59% rise in revenue and a better 66% profit increase in its recent nine months of operations that ended in September 2017.

―During the third quarter of 2017, we recorded strong business and revenue growth across multiple business lines including games, digital content, online advertising and payment related services. In particular, our video platform gained audience and revenue market share, we believe it has become China’s top online video platform in terms of mobile daily active users and subscriptions. We believe this success reflects our increasing investment in self-commissioned video content, our improved selection of licensed video content, and our scheduling and audience management initiatives. The listing of our online literature platform, China Literature, in November also reflects the value of our years of investment in the business. We believe our multi-faceted digital content businesses are synergistic with each other, and allow us to deliver unique content to our users.

Chairman and CEO of Tencent, Mr. Ma Huateng

The company also has HK$131.9 billion in debt (+HK$40 billion year on year), and HK$233 billion in book value (+HK$69 billion) in the period.

Tencent, despite its strong business expansion and good cash flow generation, has used financing activities in recent years.

In its previous three fiscal years, Tencent raised HK$68 billion in financing activities and generated HK$105 billion in free cash flow.

Relentless expansion applied with high multiples gave a figure of HK$322.80/share (vs. HK$407.40 at the time of writing). This would indicate a per ADR share figure of $41.35/share (vs. $52.20 at the time of writing).

Analysts, meanwhile, have an average price target of $61.74 per ADR share.

Disclosure: no shares in Tencent.

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