Tencent Earnings: Strong Earnings Underpinned by Major Margin Expansion; Shares Undervalued

Wide-moat Tencent’s third-quarter earnings were ahead of Refinitiv's consensus but in line with our estimates. We maintain our HKD 704 fair value estimate. We continue to view Tencent’s shares as deeply undervalued, trading at about a 50% discount to our valuation. Although our near-term forecasts do not deviate significantly from consensus, we have a much higher valuation on the stock given our view that Tencent’s network effects will generate excess economic returns over a long period. We think the market continues to underestimate how much economies of scale will benefit Tencent’s profitability in the long term. We believe that the current valuation multiple of 12 times 2024 core earnings, offers a very attractive upside to long-term investors.