Chinese tech company Tencent is expected to see gains in 2024 after three years of decline. The stock is up over 3% for the year, outperforming Hong Kong’s Hang Seng Index. Known for its gaming and social media businesses, Tencent is the biggest stock in the index with a market capitalization of over $350 billion. Analysts believe the first quarter will mark a bottom for Tencent’s games business, with growth expected to be down 4% year-over-year. The company’s diversified business models and margin expansion story have led Jefferies analysts to name Tencent as their top pick in the Asian internet sector.
Chinese authorities resumed approvals of Tencent’s games in late 2022 after a year-long freeze, providing a boost to the company. Analysts are optimistic about Tencent’s outlook due to its share buyback program, which is double last year’s amount and expected to yield around 5%. The buybacks are offsetting a sell-down by Prosus, a company owned by early Tencent investor Naspers, to fund their own share repurchase program. HSBC has a buy rating on Tencent with a target price of HK$385, expecting the game business to turn around in the second half of the year.
Tencent’s revenue sources include advertising, financial technology, and business services, diversifying its income streams. The company is set to release first quarter results on May 14, with analysts anticipating strong growth in the games business and resilient performance in advertising, fintech, and business services. The buybacks and expected recovery in the games business are key factors driving optimism around Tencent’s stock. Alibaba and JD.com have also announced share buyback programs this year, signaling a trend of mature behavior and value-focused investments in Chinese internet companies.
Factors such as low liquidity in Hong Kong have impacted share prices, but optimism remains for potential improvement with a new CEO set to take over at the Hong Kong exchange. Noah Holdings CFO Grant Pan noted that investors are now looking beyond just valuation and multiples, focusing on the actual value and earning power of companies. Clients have shown increased interest in investing in China, with prices nearing levels that may present attractive opportunities to buy. Tencent’s strong performance and positive outlook are contributing to the overall optimism in the Chinese tech sector.
Tencent’s strong performance in 2024 is attributed in part to the resumption of game approvals by Chinese authorities and strategic share buyback program. Analysts expect the company’s games business to recover in the second half of the year, supported by growth in advertising, fintech, and business services. The CEO transition at the Hong Kong exchange and increased investor interest in Chinese investments signal a positive outlook for the tech sector. As Chinese internet companies focus on value-driven investments and operational growth, Tencent is well-positioned for continued success in the coming year.
