After three straight years of decline, Chinese tech company Tencent is poised for growth in 2024. Its shares are up more than 3% for the year, in contrast to a more than 4% fall in Hong Kong’s main Hang Seng index. Tencent, widely known for its gaming and social media businesses, is the largest stock in the index with a market capitalization of more than $350 billion. The first quarter should “mark the low point” of Tencent’s gaming business, Morgan Stanley analyst Gary Yu and his team said in an April 14 report. “We expect game sales growth to decline 4% YoY (compared to negative 3% YoY decline). mainly due to weak domestic growth. However, our previous expectations for a turnaround in the second quarter remain unchanged.” The company is overweight Tencent shares with a price target of HK$400 ($51). That’s more than 30% higher than the stock’s closing price on Friday. Chinese authorities resumed approving Tencent games at the end of 2022 after more than a year of suspension. Asked in late March about the risk of new restrictions, management said regulators had made it clear they intended to “ensure a healthy environment for industry growth rather than restrict it.” That’s according to a FactSet earnings call transcript. Most of Tencent’s profits this year have come after its quarterly earnings report. The company’s other major sources of revenue include advertising, financial technology and business services. “Among our [Asia ex-Japan internet] Additionally, Tencent shares are contributing to analyst optimism about the stock. Morgan Stanley’s Yu noted that Tencent has said it will buy back at least $13 billion in 2024 — more than double last year’s buyback program — for a yield of about 5%. The buybacks offset Prosus’ ongoing divestment of its assets. in the Chinese company to finance its own share buyback program Prosus is a Dutch company owned by Naspers, one of Tencent’s early investors. would be about double the sale of Prosus shares,” Charlene Liu, head of internet and gaming research at HSBC Asia-Pacific, said in an April 16 report. “Tencent has increased its daily repurchase to HK$1 billion per day from HK$500 million per day since mid-January,” it said. HSBC has a Buy rating on Tencent shares with a target price of HK$385. The investment firm also expects Tencent’s gaming business will improve soon, although not until the second half of this year “Although it is impossible to carry out buybacks during the blackout period. [one month before earnings] may weigh on the share price in the near term, a sustained recovery in the gaming business and strong growth from advertising, fintech and business services could help support earnings growth, supported by improving margins,” HSBC said in a report. Tencent is set to release first quarter results on May 14th. Chinese internet companies Alibaba and JD.com also announced share buyback programs this year: “I think we’re definitely seeing more mature performance or behavior patterns, if you will, especially in the list.[ed] companies have to do buybacks and pay dividends,” Grant Peng, chief financial officer of Chinese asset manager Noah Holdings, told me in an interview Friday. “In the past, the stock market was predominantly driven by valuation,” he said. “But now I think what people are really looking for is not just a score, but [the] the real value of the company. Instead of looking for multiples, they are looking for profits.” Pan said low liquidity in Hong Kong had also impacted share prices in that market, but he hoped the situation could improve with the arrival of a new CEO. Bonnie Chan will become head of the business at the end of May. Noah’s clients have also become more interested in investing in China over the past two to three quarters, Pan said, noting that prices are approaching levels where investment opportunities may arise. buy — CNBC’s Michael Bloom contributed to this report.
