Among the well-known Hong Kong stocks, Tencent Holdings Limited (HG:0700) has garnered a bullish take from analysts, who are anticipating a rebound in its share price. Despite the company’s having missed some forecasts in its FY23 results, analysts maintain a positive outlook on the long-term potential of the stock, citing a strong gaming pipeline, confidence in its AI model Hunyuan, and its strength in the advertising business.
Tencent Holdings is a technology company that provides digital entertainment and internet value-added services to more than 1 billion customers. The company owns revolutionary products such as WeChat and QQ in its portfolio and is also a leading video game company in the world.
Let’s take a look at some details.
Tencent Navigating Market Uncertainty
Tencent’s stock has been facing challenges from the ongoing macroeconomic pressures affecting Chinese stocks in the market, regardless of its financial performance. It’s currently trading down 57% from its peak in February 2021. Year-to-date, the stock has gained 2.43%.
In 2023, the company witnessed a turnaround as the gaming industry saw a resurgence following the resumption of game license issuance by regulators. The preceding year had presented significant challenges for Tencent, characterized by an eight-month freeze on new game licenses and other regulatory constraints. Consequently, Tencent reported a decline in its annual revenue in 2022, marking a historic first for the company.
Analysts Maintain Bullish Outlook on Tencent
After the release of the company’s 2023 results in March, many analysts reaffirmed their Buy ratings on the stock.
For example, analyst Lei Yang from CGS CIMB predicts an upside of more than 50% in the share price. Yang maintains an optimistic outlook regarding the company’s AI model, Hunyuan, which is expected to drive overall revenue growth. Furthermore, he believes that the company’s cloud and gaming businesses will also benefit from improvements in AI technology. He forecasts that Tencent will achieve year-over-year topline growth of 10.4% and non-IFRS net profit growth of 18.2% in FY24F.
Similarly, Mizuho Securities analyst James Lee is bullish on the gaming revenues of the company in FY24. Lee raised his FY25 EBITDA by 2% to ¥273 billion, driven by new game titles scheduled in the second quarter of FY24 along with consistent performance in advertising.
Is Tencent a Good Stock to Buy Now?
According to TipRanks’ rating consensus, 0700 stock has received a Strong Buy rating, backed by a total of 12 Buy recommendations and one Hold rating from analysts. The Tencent share price forecast is HK$420.7, which implies an upside of 39% on the current trading level.
