To The Moon

Gelonghui August 17 |Tencent(0700.HK) will announce its interim results tomorrow. According to CMB International Development and Research Report, it is estimated that the revenue/profit in the second quarter will increase by 18%/8% year-on-year, slightly lower than the market expectation by 2%/1%, of which the value-added services/advertising/other revenue is expected to increase by 11%/21%/32% year-on-year. It is believed that the slowdown of game growth and the decline of profit margin have been fully expected by the market. At present, the worries focus on the uncertainty of supervision, including preventing minors from becoming addicted to online games, tax rate changes and antitrust. The weak industry sentiment caused by regulatory risks in the short term may weigh on the stock price. Based on the previous valuation low of 24 times forecast P/E, Tencent's share price is expected to be at a low of about HK$402. Lowered its 21-23 earnings forecast by 8%-11% to reflect increased investment and possible tax rate increase, lowered its target price to HK$640, maintained its "Buy" rating, and remained bullish on its long-term growth prospects and earnings visibility. Note: Tencent has now dropped by more than 4% to HK$435.4, with a market value of HK$4.17 trillion.