Tencent Earnings: Shares Undervalued As Company Sees Conducive Regulatory Environment

Although wide-moat Tencent's second-quarter results were slightly behind our estimates (but in line with Refinitiv consensus), we see no reason to alter our long-term growth assumptions, given its growth engines remain intact. We maintain our fair value estimate of HKD 704 per share. With the core business trading at around 7% free cash flow yield, we view Tencent's shares as very undervalued. We believe the market underestimates the longer-term revenue contribution from Video Accounts and the potential for more operating leverage as the internet giant cements a more efficient cost structure.