Market Fixation on Its Near-Term Revenue Overshadowing Tencent's Long-Term Opportunities

Wide-moat Tencent's first-quarter results again show the continuing impact of macroeconomic headwinds and regulatory changes. The gapping down in the stock shows that the market is still focused on near-term headwinds, and while we acknowledge that there are legitimate questions about earnings declines for the next one to two quarters, we believe a turnaround is in clear sight. We lower our fair value estimate to HKD 741 per share from HKD 837 to reflect changes in the market value of Tencent's investment holdings and recent significant depreciation of the Chinese yuan against the Hong Kong dollar. We remain confident in Tencent's longer-term free cash flow potential and view current share prices as an opportunistic entry point.