Source: Wall Street See
Author: Huang Yu

As the long-term market cap leader of China's internet and technology companies, during this wave of a broad rally in China's assets, $TENCENT (00700.HK)$ total market cap has returned to 4 trillion Hong Kong dollars. Although there is still a gap compared to the peak market cap of over 7 trillion Hong Kong dollars, it has already shown the momentum of "the king has returned".

From September 24 to October 7, Tencent's stock price rose by 23.4% in total. On October 8, impacted by the overall correction in the Hong Kong stock market,$Hang Seng TECH Index (800700.HK)$Decreased by 12.82%, tencent also fell by 8.32% along with the large cap, but its stock price has risen by over 50% since the beginning of this year.

In addition to being driven by the rise in the overall market, important factors contributing to Tencent's stock price increase this year include its billion-dollar buyback plan and positive trends in performance recovery.

During this National Day holiday, when many A-share investors are envious of the Hong Kong stock market, Tencent's buyback activity has not paused. On October 3, 4, and 7, Tencent continued to buy back shares in the Hong Kong stock market, with repurchase amounts of 0.251 billion Hong Kong dollars, 0.137 billion Hong Kong dollars, and 0.502 billion Hong Kong dollars respectively. The highest repurchase price on October 7 reached 482 Hong Kong dollars per share.

It is not hard to notice that compared to the previous daily repurchase amount of 1 billion Hong Kong dollars, Tencent's daily repurchase amount has decreased. Some investors believe that due to the exchange rules restrictions, the repurchase price of Hong Kong stocks cannot exceed 5% of the average closing price of the past 5 trading days. Therefore, in the case of a significant short-term rise in stock price, Tencent is executing the repurchase plan under pressure.

However, looking at the total repurchase amount, as of the closing on October 7th, Tencent has repurchased over 89 billion Hong Kong dollars this year. At the current pace, Tencent is expected to achieve the promised billion repurchase commitment this year ahead of schedule, doubling the repurchase amount of 49 billion Hong Kong dollars for the entire previous year.

The certainty of earning power is the foundation of Tencent's billion repurchase. Based on the current 89 billion Hong Kong dollars in repurchase, Tencent has basically spent around 83% of the non-IFRS attributable net income for the first half of the year.

To further boost market confidence, Tencent is not only conducting share repurchases but also continuously deepening its moat.

Recently, there have been market reports stating that Tencent and the founding family of Ubisoft Entertainment, Guillemot family, are considering a joint acquisition of the French game company Ubisoft Entertainment and privatizing it to stabilize the company and enhance its value. However, this option is still in the early stages, and it is uncertain whether the transaction will ultimately be completed.

On October 7th, Ubisoft issued a notice stating that the company has noted recent media speculations about the company's potential interests. For the benefit of stakeholders, Ubisoft will regularly review all strategic choices and disclose them to the market at the appropriate times.

Tencent has not responded to this matter yet.

Ubisoft is a globally renowned 3A game giant, integrating game production, distribution, and sales. Its game series like Assassin’s Creed is one of the representatives of global 3A games, with other works including Rayman and Prince of Persia.

However, affected by poor market performance after the launch of new games and other factors, Ubisoft's stock price has been continuously falling this year. After the acquisition news came out, Ubisoft's stock price surged by 30.74% on October 4th in US Eastern Time. However, compared to the beginning of the year, its current stock price has almost halved, with a total market cap of approximately 1.9 billion euros.

Ubisoft's current stock price is undoubtedly at a low point. For comparison, other top game companies such as EA have a market cap exceeding 37 billion USD, while Take-Two's market cap exceeds 25 billion USD. In addition, a recent article from Forbes Asia mentioned that the game developer Game Science, creator of "Black Myth," has an estimated value of 1.8 billion USD.

It is worth mentioning that Tencent and Ubisoft have a long history of cooperation. As early as 2018, Tencent became an important shareholder of Ubisoft through strategic investment. Subsequently, as the two companies' collaboration in game development and distribution became increasingly close, Tencent has gradually become a significant driving force for Ubisoft's global strategic expansion.

In 2022, Tencent once again increased its stake in Ubisoft. Ubisoft's latest annual report shows that as of March 31, 2024, Tencent holds 9.986% of Ubisoft's shares with 9.185% of net voting rights, while the Guillemot family members collectively hold 15.438% of shares and 20.455% of voting rights.

Some industry insiders believe that with the intensification of global competition in the gaming market in recent years and the increasing demand for original content, Tencent's decision to privatize Ubisoft at this time seems to be aimed at further deepening its layout in the global gaming industry.

In addition, internet industry analyst Zhang Shule expressed to Wall Street News that Tencent's strategy of acquiring premium game resources in the global gaming market is not news. Ubisoft, as a leading global game giant, not only possesses strong game super IPs but also has powerful R&D capabilities and a presence on multiple game platforms, all of which Tencent desperately needs.

Zhang Shule believes that, at present, there is a battle among global gaming giants.MergerIt has already entered into a white-hot stage, especially.$Microsoft (MSFT.US)$,$Nintendo (7974.JP)$,$Sony Group (6758.JP)$Every move is stimulating Tencent, if you don't act now, it will be too late.

Gaming is Tencent's flagship business and also the biggest hope for Tencent's international expansion, as stated by Pony Ma.

At the beginning of the year, Ma Huateng stated at Tencent's internal annual meeting that in recent years, Tencent has played a certain advantage and built a reputation in the development of mobile games for major IP game companies overseas, as well as in network operation and operation. Tencent hopes to horizontally deepen and solidify its software and game development, rather than confronting other game companies or hardware manufacturers from a vertical perspective. The key is to find its own main business and focus on it, which will lead to more success.

After a series of restructuring and optimization, Tencent Games reversed its downturn in the second quarter of this year and saw a turning point in performance. Tencent's financial report shows that in the second quarter of this year, the revenue of Tencent's gaming sector reached 48.5 billion yuan, reaching a new quarterly high, with a year-on-year growth of 9% both domestically and overseas, exceeding expectations. International market game revenue accounts for approximately 29%.

Clearly, Tencent still has good growth potential overseas.

DBS believes that Tencent currently derives 30% of its online game revenue from overseas markets, and predicts that overseas online game revenue will grow rapidly at a compound annual growth rate of 12% from 2023 to 2026. Maintaining a "buy" rating on Tencent, the target price has been raised from 537 to 577 Hong Kong dollars to reflect the clear profit outlook and shareholder-friendly policies.

Morgan Stanley also pointed out, Tencent, $PDD Holdings (PDD.US)$and $TRIP.COM-S (09961.HK)$ / $Trip.com (TCOM.US)$ The company is in a favorable position to leverage international opportunities, and the potential for overseas expansion will be a long-term growth driver. Investors should pay more attention to the global prospects of the Chinese internet-related industry, as risks related to geopolitical tensions may cause short-term volatility but could also create buying opportunities.

With positive expectations for overseas growth, Tencent will continue to be seen as the 'king of stocks' in investors' minds.

Editor / jayden