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Friday, May 19, 2017, 14:51
Surprise earnings jump boosts Tencent stocks
By Jasmine Zhou
Friday, May 19, 2017, 14:51 By Jasmine Zhou

Tencent's penguin mascot toys are seen at the company's office in Xigema building in Beijing, Dec 23, 2016. (Photo/VCG)

Internet giant Tencent’s stock price hit a record-high HK$271.40 on Thursday morning after the firm posted first-quarter earnings results which topped estimates late on Wednesday.

Tencent’s net profit surged 58 percent for the three months to March 31, driven mainly by increasing revenue from smartphone and PC games and beating the market’s expectations. Tencent’s stock price rocketed 4.46 percent in the morning session, outperforming the broad market. In late afternoon trade, Tencent was 1.62 percent higher at HK$264 while the Hang Seng Index was 0.62 percent lower. 

Alex Wong, a stock analyst from Ample Capital, pointed out: “The popularity of smartphone game Honour of Kings is one of the major reasons for the higher revenue. The improvement in mobile payment business also makes Tencent a competitive rival against Chinese e-commerce giant Alibaba.” He expects its share price to soon reach HK$300 with limited downside risk. 

“The institutional investors like index funds are the main driver for Tencent’s shares to climb up further,” he added.

Tencent reported that it generated a 57 percent year-on-year growth in revenue on smartphone games, including Honour of Kings, a popular game among teenagers which has about 50 million daily active users. Wechat, the hot social media app in the Chinese mainland, had 938 million monthly active user accounts, a rise of 23 percent from last year.

Digital content revenue also rose mainly because users were willing to pay for content and the copyright environment improved. The content business also improved their online advertising.

UBS raised Tencent’s target price to HK$310 from HK$265 per share, believing there will be further upside for share price after net profit and revenue topped estimates. Bank of China Merrill Lynch also lifted its target price to HK$267 from HK$259 despite intensified video-market competition.

Ample Capital’s Wong had a bearish outlook on mainland-based stocks given the weaker economic indicators, which may affect the overall Hong Kong stock market. The overseas economic environment was also not promising as controversies beset United States President Donald Trump’s administration and US stocks underperformed. He believed Tencent’s strong performance would counter downward pressure on Hong Kong stocks in the near future.

Liu Weitingting, a Hong Kong Baptist University student who holds Tencent shares, is excited about the result: “I bought the shares at HK$214 in March this year and it has already risen up by 26 percent! Their success in smart-phone games and eyes on Artificial Intelligence give me confidence in their future business performance. As I know, many of my friends are also eager to buy Tencent’s shares, however, I won’t sell it!”

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