Another Tencent bear emerges as competition clouds earnings while regulatory concerns are still playing out
- Yang at Blue Lotus Capital becomes the second bear on Tencent since Muhl at DZ Bank downgraded the stock to a sell in August
- Analysts have trimmed their price targets for Tencent shares by 21 per cent over the past six months, as company readies its third-quarter report
Shawn Yang Zixiao, deputy research head and a managing director at Blue Lotus Capital Group in Hong Kong, cut his rating to “sell” on the WeChat operator and maker of PUBG online games on October 19, after downgrading it to “hold” on June 29. In that 19-week span, the stock slumped by 21 per cent.
“Tencent is facing increasing near-term pressure, its strengths lie in its traffic which is what its business model is based on,” Yang said in an interview. “It has been losing its dominant position due to competition from ByteDance. Several of Tencent’s key advertisers are showing weakness in the second half of the year.”
Blue Lotus is a boutique investment bank founded in 2015, focusing on China’s internet and new economy sector. It has offices in New York, Hong Kong and mainland Chinese cities of Shanghai, Shenzhen and Wuhan, according to its website.
Investors will get another look at how the company is doing when the Shenzhen-based company delivers its third-quarter report card on Wednesday. The stock has struggled to advance on Tuesday, with earnings expected to be only 0.5 per cent better than a year earlier, based on consensus estimates of analysts tracked by Bloomberg.
To explain the lethargy, he said major carmakers are trimming their advertising spending because of disruptions in chip supply, according to Yang’s report. Real estate, online gaming and online education firms are doing the same because of the uncertain regulatory landscape.
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Yang has a price target of HK$446 for Tencent shares, compared with the consensus of HK$625.74 by analysts who follow the stock. Despite a seemingly bullish upside of 35 per cent, the analysts have slashed their price target by 21 per cent from HK$788.69 over the past six months. There are 62 buy calls, six hold recommendations and two sell ratings on the stock, according to Bloomberg data.