Analyst: Tencent game approval is uncertain. Industrial Internet is long-term good.


Analyst: Tencent game approval is uncertain. Industrial Internet is long-term good.

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In the morning of November 15, Beijing time, Sina Technologies News reported that Tencent's third-quarter results released Wednesday showed that the company's total revenue in the third quarter was 80.595 billion yuan, an increase of 24% over the same period last year, a growth rate of 13 quarters to a new low. The company's equity holders should earn 23 billion 333 million yuan, an increase of 30% over the same period last year. Non general accounting standards, the holders of equity should earn 19 billion 710 million yuan, an increase of 15% over the same period last year.

Tencent management said in a conference call that there was no new progress in the approval of the new game, making the company's third quarter earnings prospects dim. Since January this year, Tencent's share price has evaporated more than $230 billion, and game approval has become the focus of investors'attention.

As of 9:58 a.m. Beijing time on November 15, Tencent's stock market in Hong Kong rose 3.4% to close at HK$281.40, driving the Hang Seng Index up. But Tencent's stock price is still down 31% this year.

Following is a summary of Tencent's third quarter performance commentary by major investment bank analysts:

Morgan chase analyst Alex Yao:

- the target price dropped from HK $400 to HK $345, and Tencent was kicked out of the industry's preferred list.

- As the most important swing factor in game revenue in 2019, the situation of new game monetization approval is still extremely uncertain, and the possibility of suspending approval seems to be much more serious than originally envisaged.

- cautiously optimistic about the resumption of approval procedures at the end of 2019;

- The expansion of the industrial Internet seems to be a short-term pain point, but it is a long-term advantage; it may take years to produce financial returns;

- the earnings per share (EPS) target in 2019 and 2020 decreased by 11% and 9% respectively;

- Alibaba is more valued in big market capitalization because of its better control over profitability.

Citigroup analyst Alicia Yap:

- the target price has been lowered from HK $420 to HK $392 to maintain the buying rating.

- Recent growth prospects for gaming revenue are "still unclear" because there is no indication when approval will resume, and "Glory of the King" initiates real-name certification.

Tencent's recent restructuring and upgrading and the latest strategic focus on industrial Internet make it an important digital assistant for industrial partners, which can build another Internet Empire around enterprises and provide support for provincial and municipal services.

- the 2019 adjusted earnings per share target was lowered from HK $13.10 to HK $11.50.

Morgan Stanley analyst Grace Chen:

- The price target was downgraded from HK$420 to HK$370 to maintain a higher rating; "In view of macro risks, we believe that we should be cautious in our forecasts."

- net game revenue is lower than expected, mainly due to the weak sales of PC games;

"Gross profit margin for value-added services fell to a record low of 56.5%, possibly due to poor product mix and lower than expected PC game sales."

Online advertising revenue is a bright spot, thanks to the promotion of social networking and other businesses, such as Wechat Friends Circle, applets and QQ Perspectives.

- third quarter revenue of other businesses is good. The driving force in this field comes from commercial payment, financial technology services and cloud business.

Credit Suisse analyst Thomas Chong:

- game licenses do not update information, and recent measures have limited impact on minors.

There is still room for growth in mobile game revenue, user average income and payment rate.

- Industrial Internet is expected to become a long-term growth engine, initially gaining market share through the cloud.

- maintain excellent performance with a price target of HK $411.

Natalie Yue Wu, an analyst with China International Capital Corporation:

- From advertising revenue, stock prices rebound in the short term, but in the long run, the market will recognize that the weaknesses of personal computers will hit advertising/other revenue;

- the turbulent situation related to monetization of games will continue into the mid 2019.

- Considering that Nexon, a Korean gaming company, is weak in China and its revenue in the fourth quarter is not up to expectations, PC gaming revenue is under pressure.

- maintain buy rating and HK $365 price target.

Karen Chan, analyst at

- As a result of the continuous recovery of mobile games and the acceleration of advertising growth, the weakness of the PC game market was offset and the performance was "better than expected";

- The clarity of the game approval timeline is still very low, but the 15 approved game grants can provide a buffer time of 2-3 quarters;

- cloud and small programs show long-term monetization potential;

- maintain buy rating and HK $385 price target. (Si Mei)


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