Items:
Tencent carried out a new round of buybacks on August 19, and then continued to repurchase on August 20 and August 23, with three repurchase shares of 180000 shares, 240000 shares and 230000 shares respectively. Tencent had fallen more than 40 per cent from its peak due to expectations of antitrust and personal information security regulation.
Comments:
Review the repurchase cases in Tencent's history under the impact. Taking Tencent's annual report as a unit, we make statistics on Tencent's previous buybacks; we find that Tencent has had a total of 13 annual buybacks and two major shareholder reductions in South Africa in history, and most of the buybacks took place in the period of sharp decline in stock prices.
Among them, the more typical cases are as follows: during the financial crisis in 2008, the stock price fell from the all-time high PE point, and the company bought back: at that time, Tencent's annual net profit was less than 3 billion yuan. Then, with the stabilization of market sentiment and the growth of profits, the stock price returned to the rising range in 2009, and the net profit exceeded the level of 5 billion yuan.
After the financial crisis, the company ushered in Davis double-click until the second big external shock, that is, the 3Q war:
The storm of public opinion once again had a greater impact on the valuation, Tencent stepped in to buy back. Since then, Tencent has made strategic adjustments and gradually entered the dividend period of the mobile Internet, entering the Davis double-click for more than 5 years; the net profit has increased from 10 billion yuan in the 3Q war to 70 billion yuan, and the valuation center of PE has also risen from the previous 20X to the highest nearly 60X.
Since then, in 2018, Tencent's long-term major shareholder, South Africa's Naspers, reduced its holdings of Tencent for the first time at the relative high point of PE, ushering in the cold winter of the version number in the same year; the version number temporarily stopped the company's growth rate for nearly a year, PE and stock price pullback, while the company stepped in to buy back. Since then, with the release of the version number, the profit growth rate of the company has gradually recovered, and a small rise in the valuation center of PE has led to a rise in the stock price. Immediately after the 2020 epidemic stimulated the online economy, Tencent once again entered a round of fast Davis double-click, when stretching to see that the company's valuation center moved down a little.
Until early 2021, Naspers carried out the second reduction in history, and then superimposed antitrust regulatory expectations and personal information protection expectations gradually increased; under pressure, Tencent PE valuation fell to the lowest point in a decade, less than 20x. At the same time, Tencent once again launched a buyback, which is also the lowest valuation of Tencent in history.
Judging from the trend after the repurchase over the years, Tencent's repurchase often occurs at the low point of the stock price. Judging from the 13 annual repurchases in history, the largest decline in the six months after the first annual repurchase was more than 10%, that is, in 2011 (- 17%) and 2018 (- 20%). The increase was positive after half a year and a year later, with an average increase of 50% six months later and 100% a year later. We believe that Tencent's previous buybacks are due to long-term confidence in his own business and short-term stock price undervaluation.
Profit forecast, valuation and investment rating. We believe that the company's current valuation has been highly attractive and long-term competitiveness has been maintained, waiting for regulatory requirements to land or bring long-term investment opportunities. To maintain the estimated net profit of 159.1 billion yuan (yoy-0.5%) / 184.7 billion yuan (yoy+16.1%) / 216.6 billion yuan (yoy+17.3%) from 2021 to 2023, the corresponding PE is 21.8 yoy-0.5% / 184.7 billion yoy+16.1% 16.0X respectively. We give the valuation centers of 25x, 25x price-to-earnings ratio and 10x price-to-sales ratio for value-added services, online advertising, financial technology and corporate services respectively based on the 2021 forecast results, superimposing the corresponding valuation of Tencent's investment business (15% discount). A total of HK $656 is given to the company, maintaining the "recommended" rating.
Risk hint: the development of video number is slower than expected, the new change is worse than expected, Internet regulation is tightening and so on.