After three years of decline, Chinese tech company Tencent seems poised for gains in 2024, with its stock up more than 3% for the year so far. Known for its gaming and social media businesses, Tencent is the largest stock in Hong Kong’s main Hang Seng Index, with a market capitalization exceeding $350 billion. Analysts at Morgan Stanley are optimistic, with expectations that the first quarter will mark the trough in Tencent’s games business. Despite an expected 4% year-over-year decline, analysts believe that the second quarter will show an inflection point, with a target price of 400 Hong Kong dollars ($51), representing more than a 30% increase from the current stock price.
Chinese authorities have resumed approvals of Tencent’s games after a freeze of more than a year, leading to increased confidence and gains for the company. Additionally, Tencent’s diverse revenue streams from advertising, financial technology, and business services further add to analysts’ optimism. With expanded share buybacks and the announcement of a $13 billion repurchase program for 2024, Tencent aims to counteract the sell-down by Prosus, a Netherlands-based company owned by Naspers, an early investor in Tencent. Prosus’ share sale is expected to be offset by Tencent’s buyback program, with HSBC projecting a total buyback for 2024 to be around double the amount of Prosus’ share sale.
The investment firm Jefferies considers Tencent as their top pick among Asia ex-Japan internet stocks, citing its diversified business models and margin expansion potential. Other analysts’ enthusiasm for Tencent is fueled by the company’s robust financial performance and strong outlook for the future. Chinese internet giants Alibaba and JD.com have also initiated share buyback programs in 2024, indicating a shift towards more mature financial strategies within the industry. Grant Pan, CFO of China-based wealth management firm Noah Holdings, notes a transition from valuation-driven to value-driven behavior in the market, as investors now seek companies with solid earning power rather than focusing solely on multiples.
Tencent is set to release its first quarter results on May 14, with expectations for a turnaround in its game business in the second half of the year. The company’s emphasis on buybacks, alongside revenue diversification and regulatory approvals, have contributed to its positive outlook for 2024. Despite challenges like low liquidity in Hong Kong, investors are showing interest in Chinese tech companies, with prices potentially reaching attractive levels for investment opportunities. With a new CEO set to lead the Hong Kong exchange, improvements in liquidity and market performance are anticipated, creating a favorable environment for investors. As Chinese tech companies continue to demonstrate financial resilience and strategic initiatives, analysts and investors alike are optimistic about the sector’s prospects for the year ahead.
