Major Bank Ratings | CMB International: Regulatory Risks Remain; Tencent (0700.HK) Share Price Expected to Low Around HK$402

Gelonghui, August 17th |Tencent(0700.HK) will announce its interim results tomorrow. CMB International issued a research report stating that it estimates second-quarter revenue/profit to increase by 18%/8% year-on-year, slightly lower than market expectations by 2%/1%. Among them, value-added services/advertising/other revenue is expected to increase by 11%/21%/32% year-on-year. It is believed that the slowdown in game growth and the decline in profit margins have been fully expected by the market. Current concerns are focused on regulatory uncertainty, including preventing minors from becoming addicted to online games, tax rate changes, and anti-monopoly measures. In the short term, regulatory risks have weakened industry sentiment and may put pressure on stock prices. If we extrapolate P/E based on a previous valuation low of 24 times, Tencent's stock price is expected to reach a low of around HK$402. We have lowered our 2021-2023 earnings forecast by 8%-11% to reflect increased investment and potential tax rate increases. We have lowered our target price to HK$640 and maintained our "buy" rating. We remain optimistic about its long-term growth prospects and earnings visibility. Note: Tencent is currently down more than 4% to HK$435.4, with a market capitalization of HK$4.17 trillion.