Bulls come out for Tencent ahead of 3Q financial results

PUBLISHED : Monday, 11 November, 2013, 5:17am
UPDATED : Monday, 11 November, 2013, 6:47am

Investors might have to brace themselves for a ground-shaking bull run on Wednesday, when internet giant Tencent reports its financial performance for the quarter to September.

Shenzhen-based Tencent, the mainland's largest listed internet company, is expected to post solid third-quarter results on the back of its dominant market position in internet games, steady growth in online advertising, increased e-commerce activity, and commercialisation of its WeChat social-messaging mobile application, analysts say.

WeChat, also known as Weixin on the mainland, is likely to be put in the spotlight by investors to determine the progress of Tencent's new paid-for mobile games, which are being released through the application.

Ricky Lai, a research analyst at Guotai Junan International, said he was bullish on Tencent because of its strong games pipeline and stimulus from Weixin monetisation.

"We see Tencent, the online games market leader in China, benefiting from the broad proliferation of smartphone users, who have shifted from playing games on the PC to the mobile platform," Lai said.

He estimated WeChat to have about 300 million users on the mainland and more than 100 million users overseas.

Data from the state-backed China Internet Network Information Center showed that the number of users who accessed the internet on their mobile phones reached 464 million at the end of June.

In a report published by Barclays, lead author Alicia Yap, the firm's head of China internet research, said: "We believe Tencent will likely deliver an in-line result, meeting expectation for its top-line growth. We estimate total revenue of 15.48 billion yuan (HK$19.7 billion) and net profit of 3.65 billion yuan."

Yap said League of Legend remained a solid moneymaker that was estimated to have helped Tencent generate a 29.7 per cent year-on-year increase in online game revenue to 7.75 billion yuan. The games Legend of Yulong, Legend of Xuanyuan, and Dungeon and Fighter continued to record steady growth.

Mobile gaming revenue in the third quarter was projected to reach 390 million yuan due to the commercial launch of paid offerings on WeChat and the Wireless QQ service. Online advertising revenue last quarter was projected to have risen 37.9 per cent year on year to 1.4 billion yuan.

Barclays predicted Tencent would post total revenue of 59.46 billion yuan this year, up from 43.89 billion yuan last year.

Guotai Junan has revised upwards by 3.2 per cent its forecast total revenue to 60.49 billion yuan, from the previous estimate of 58.6 billion yuan.

Tencent's shares fell 1.47 per cent to HK$401.40 on Friday. They have risen about 63 per cent this year.