Why is the Tencent share price rising when others are falling?

Chinese internet behemoth Tencent Holdings's share price has been on an upward trajectory since releasing its Q4 and year-end financial results for 2019 last Wednesday 18 March.

Incidentally, just hours before the company announced its earnings that same day, share price had sunk to its lowest level (HK$410 a share) since December last year – when US-China trade tensions were still at escalated.

Since posting its earnings, share price has climbed over 12% and HK$40 to the current level of HK$383 per share, as at 14:30 SGT on 26 March.

By all accounts, the group’s share price has been able to stay relatively sound amid all the coronavirus-triggered panic selling of the last two months.

Consider this, based on current trading levels, Tencent’s market valuation has fallen a more manageable 8.8%, versus the Hang Seng Index’s much steeper decline of 21.3% over the same time period.

Comparatively, Chinese e-commerce site Alibaba Group – often referred to as Tencent’s biggest rival – has seen its Hong Kong market cap erased by some 22.8% since 20 January.

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Tencent proposes higher share dividends on stable 2019 earnings

The company enjoyed a stable year on an unadjusted basis, with net profit for the year higher than 2018 by 22% at RMB97,589 million (US$13,989 million). Net margin remained constant at 26%.

Total revenues were RMB377,289 million (US$54,082 million), an increase of 21% over the year ended 31 December 2018.

Profit attributable to equity holders of the Company for the year was RMB94,351 million, an increase of 22% year-on-year. Basic earnings per share were RMB9.966. Diluted earnings per share were RMB9.729.

As a result of the increase, the group’s board of directors had recommended a higher final dividend of HK$1.20 per share for 2019, up from HK$1.00 per share in 2018. This is subject to the approval of the shareholders at the Annual General Meeting.

Breaking down Tencent’s 2019 fourth quarter by segment

Breaking down by segment, revenues from value-added services increased by 20% year-on-year in the fourth quarter of 2019 to RMB52.31 billion. Online games revenues rose by 25% against the same period in 2018 to RMB30,286 million.

The increase was primarily driven by revenue growth from smart phone games in both domestic and overseas markets, including titles such as Peacekeeper Elite and PUBG Mobile, as well as revenue contribution from Supercell titles, partly offset by lower revenues from PC client games such as DnF.

Social networks revenues grew by 13% to RMB22.02 billion, mainly reflecting greater contributions from digital content services such as live broadcast and music streaming services.

Revenues from FinTech and Business Services increased by 39% year-on-year to RMB29.92 billion. The increase was primarily due to greater revenue contributions from commercial payment, as well as revenue growth from cloud services as a result of deeper penetration in key verticals.

Online advertising top-line increased by 19% from 2018’s final quarter to RMB20.23 billion. Social and others advertising revenues increased by 37% to RMB16.27 billion, mainly driven by advertising revenue growth from Weixin Moments and our mobile advertising network.

Media advertising revenues, however, decreased by 24% to RMB3.95 billion. The decrease primarily reflected lower advertising revenues from media platforms including Tencent Video and Tencent News due to uncertain broadcasting schedules and fewer telecasts of sports events.

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How will Tencent fare in first quarter of 2020 amid the coronavirus pandemic?

While the coronavirus will adversely impact cloud computing and business services, the group noted that one benefit that has come out of the coronavirus pandemic is the proliferation of remote working and utilisation of remote health care services, which can only increase the uptake of Tencent’s digital productivity tools, such as Tencent Meeting, in the long run.

According to the company, Tencent Meeting exceeded 10 million DAUs within two months of launching in December 2019, becoming the most-used dedicated video conferencing app in China. With the coronavirus forcing employees to work from home, Tencent Meeting’s performance is set to benefit further in the first quarter of 2020.

The company also deepened the integration between social network Weixin and office communicator WeChat Work to facilitate customer management and sales conversion. As a result, millions of enterprises employed WeChat Work to resume work in the wake of the coronavirus outbreak.

Over 300 million Weixin users have also utilised Tencent Health as an important access to real-time pandemic data, online consultation and AI-powered self-diagnosis services.

Ma Huateng, Chairman and CEO of Tencent, said: ‘Amid the COVID-19 situation, we have worked relentlessly to help individuals and serve society, organising charitable and voluntary activities, enhancing and making widely available useful technology tools including WeChat Work, Tencent Meeting app, Tencent Medipedia information service, and Tencent Classroom app, as we seek to fulfil our corporate mission of Value for Users, Tech for Good.’

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