To The Moon

🌟🌟🌟$Tencent HK SDR 10to1(HTCD.SI)$ $TENCENT(00700) Tencent's share price has dropped almost 11% this week after it was added to a US Defense Department list of companies connected to the Chinese military.  However Tencent responded by saying that Tencent is not a military company or supplier.  Tencent also said that unlike sanctions or export controls, the listing has no impact on its business.  Tencent will nonetheless work with the Department of Defense to address any misunderstanding.

In addition to that, Tencent bought back HKD 1.5 billion (USD 193 million) worth of its stock in a single day of trading.  This is the largest buyback since 2006.

What is the implication for Tencent being placed on the US Department of Defense Blacklist?

The implication is that Tencent maybe subjected to intensified regulatory scrutiny and may negatively impact  its ability to access  American capital and technology as well as the ability to execute Mergers and Acquisitions within the US.  It may also negatively impact its reputation among US companies and investors. 

However this blacklisting move may be irrelevant for Tencent as it is based in China and its core businesses are heavily focused in Asia where Tencent  continues to dominate especially in gaming, social media and Fintech.

Moreover Tencent's operations in the US remain relatively minor compared to its footprint in China and other international regions.  That means the direct impact on its bottom line and strategic direction will be limited.  However restricted access to US technology such as Nvidia's chips maybe a concern.

In addition to that, the effect on Tencent's strategic equity position in US based companies such as Epic Games is likely limited, mainly because these stakes are largely passive minority stakes.  In the case of Epic Games, Tencent owns 40% and is not deeply involved in Epic Games day to day running of its business.  Epic Games' revenue is generated by the global gaming community, not US government customers.

So I would not be too worried on the blacklisting move as it does not really affect Tencent business per se.

Tencent Holdings also has strong financials with profit expansion momentum carrying into 2025.  In Q3 24, Tencent's Total revenue was RMB 167.2 billion (USD 23.9 billion), up 8% year over year.  Gross profit was RMB 88.8 billion (USD 12.7 billion), an increase of 16% year over year.  Operating profit was RMB 61.3 billion (USD 8.7 billion), up 19% year over year.  Operating margin increased to 37% from 33% in 2023.

Profit for the quarter was RMB 60.9 billion (USD 8.7 billion), up 33% year over year.  Diluted Earnings per share was RMB 5.644.  Total cash was RMB 425.5 billion (USD 60.7 billion) and free cash flow was RMB 58.5 billion (USD 8.3 billion) an increase of 14% year over year.

According to Ma Huateng, Chairman and CEO of Tencent, Tencent delivered robust revenue growth in its games business, underpinned by consistent performance of evergreen games globally and contributions from new games with evergreen potential.  Tencent also upgraded its ECommerce strategy around Mini Shops, to create a unified and trustworthy transaction experience spanning the entire Weixin ecosystem.  Tencent is also seeing increasing tangible benefits of deploying AI across its products and operations.  These include marketing services and cloud.  Tencent will continue to invest in AI technology, tools and solutions that assist users and its business partners.

Tencent is bringing strong profit momentum into 2025.  Consensus estimates according to data collected by Refinitiv, currently see Tencent adding another USD 5 billion in revenues in 2025 and USD 8 billion of operating income, demonstrating strong efficiency gains. 

Even though Tencent has dropped almost 11% in the past 5 days, Tencent is still up 28% in 2024.

Analysts are  bullish on Tencent with an Average Target price of HKD 485.18 according to 51 analysts surveyed.  That is an upside potential of 31%.

Since $Tencent HK SDR 10to1(HTCD.SI)$ is trading at a ratio of 10 to 1, the average Target price will be SGD 8.55.    I believe that the recent blacklisting by the US Department of Defense presents an attractive entry point to invest in Tencent as it has solid fundamentals with strong financials and continued profit expansion.  Tencent also pays dividends once a year.   The current dividend yield is 0.92%.Tencent goes ex dividend on May 16 2025 with a pay date of May 30 2025.  

Another great incentive to buy Tencent $Tencent HK SDR 10to1(HTCD.SI)$    is the current promotion of Zero commission by Tiger Brokers. 

As Warren Buffett likes to say When there is Fear in the markets it is time to be greedy.  

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