Tencent Earnings: Scoring Big on Shareholder Returns; Gaming Turnaround Takes Center Stage

Tencent's fourth-quarter earnings highlighted significant capital returns to shareholders, with the firm promising to distribute about 4.8% of its market cap as of March 20 as buybacks and dividends, affirming our Exemplary Capital Allocation Rating. Although gaming revenue growth has concerned investors, management is taking steps to resolve internal issues by enacting leadership changes, setting the stage for a turnaround. Comments on regulatory development were also reassuring. With earnings broadly in line with our estimates, we retain our fair value estimate of HKD 704 per share.