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Shares of Hong Kong-listed Tencent Holdings are trading near the most overbought level since late 2017. Photo: Simon Song

Internet giant Tencent’s US$107 billion rally has surprised even bullish analysts

  • Tencent has jumped 27 per cent since an October low, topping HK$405 on Monday for the first time since 2018

Tencent Holdings’ analysts, who have a history of being too bullish, have now been caught off guard by a rally that is gathering pace in Asia’s biggest stock.

Shares of the Chinese internet giant are closing in on analysts’ consensus target price, something which has not happened in nearly two years. It is the most loved stock in Hong Kong, as none of the 57 analyst ratings tracked by Bloomberg recommend selling the shares. Of the 50 bullish analysts, more than one-third have a 12-month price target that lags its current price.

Tencent has jumped 27 per cent since an October low, adding US$107 billion to shareholder value.

The share price topped HK$405 on Monday for the first time since 2018, the price at which its biggest shareholder sold about US$10 billion worth of shares early that year. It was Hong Kong’s biggest-ever secondary offering at the time.

Tencent rose as much as 1.6 per cent on Tuesday to HK$413 before turning lower with the broader market. Shares fell 1.5 per cent to close just above HK$400.

A series of block trades totalling almost 1 million shares crossed Tuesday morning at around HK$402, suggesting some shareholders are making the most of the rally to take profit. The stock is trading near the most overbought level since late 2017.

“The stock is rising partly due to a better earnings outlook,” said Kevin Tam, analyst at Core Pacific-Yamaichi International. “Its gaming product PUBG Mobile has done very well recently and there are some good signs for its new businesses.”

Revenue from PUBG Mobile was the world’s highest in December, according to researcher Sensor Tower. The video game garnered the second-most downloads globally last year.

Tencent’s Call of Duty: Mobile made it into the top 10 for 2019, despite only being released in October.

WeChat mini programs are becoming a lot more important for Tencent

Last week, Tencent announced new initiatives to further monetise its social networking application WeChat, including the launch of more customised tools for users on the platform, according to CICC. “We expect short-term sentiment to rise on new initiatives but believe the actual impact will be limited,” analyst Natalie Yue wrote in a report.

These good signs came after a bearish quarter. The company’s profit plummeted 13 per cent in the third quarter, missing the most pessimistic analyst forecast, when an economic downturn depressed advertising and prompted charges within its huge portfolio of investments.

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