In a surprising turn of events, Chinese tech giant Tencent is showing signs of a turnaround in 2024 after three consecutive years of decline. The stock has outperformed Hong Kong's main Hang Seng Index, gaining more than 3% so far this year. This is particularly impressive considering the index has experienced a decline of over 4%. As the largest stock in the index with a market capitalization exceeding $350 billion, Tencent's recent performance has caught the attention of investors and analysts alike.
Resilience in Gaming Business
Despite facing challenges in its gaming business, Tencent is expected to see improvements in the first quarter of 2024. Analysts at Morgan Stanley are optimistic about the company's games business, projecting a 4% year-over-year decline due to soft domestic growth. However, they believe that the second quarter could be an inflection point for Tencent. With an overweight rating on Tencent shares and a price target of 400 Hong Kong dollars, Morgan Stanley sees significant upside potential of over 30% from the current levels.
Apart from its gaming and social media businesses, Tencent's revenue streams include advertising, financial technology, and business services. The company's diversified business models and margin expansion story have garnered praise from analysts at Jefferies, who named Tencent as their top pick in the Asia ex-Japan internet sector. The positive outlook is further supported by share buybacks, with Tencent announcing a buyback program of at least $13 billion in 2024, signaling confidence in its growth trajectory.
Tencent's aggressive share buyback program has been well-received by investors, especially in light of Prosus' ongoing sell-down of its holdings in the company. With the prospect of Tencent buying back twice the amount of Prosus' share sale, investor confidence in the stock remains high. HSBC reiterated its buy rating on Tencent, setting a target price of 385 Hong Kong dollars. The investment firm expects a turnaround in Tencent's game business in the second half of the year, supported by resilient growth in ads, fintech, and business services.
The evolving behavior patterns of listed companies, such as increased buybacks and dividends, reflect a shift towards focusing on the actual value of a company rather than just its valuation multiples. Grant Pan, CFO of Noah Holdings, highlighted this trend, emphasizing the importance of earning power over traditional valuation metrics. He also noted the impact of low liquidity in the Hong Kong market on share prices, expressing optimism for improvement under new leadership.
Opportunities for Investment in China
As Tencent prepares to release its first-quarter results in May, investors are closely monitoring the company's performance and its potential impact on the broader market. With Chinese internet companies like Alibaba and JD.com also announcing share buybacks, there is growing interest in the investment opportunities available in China. Noah's clients have shown increased interest in Chinese investments, signaling a potential shift in sentiment towards the region.
Tencent's upward momentum in 2024 presents a compelling investment opportunity for those looking to capitalize on the company's diverse revenue streams and growth prospects. With a supportive regulatory environment and strong investor confidence, Tencent is well-positioned to deliver value to shareholders in the coming year.