Why Tencent Looks Attractive Today

We remain positive on wide-moat-rated

Recent market jitters were driven by net revenue growth slowing to 30%--the slowest pace since third-quarter 2015--and a 2% year-over-year (23% quarter-on-quarter) decline in net profit. The slowdown reflects a lack of new game launches, which is leading to concern that the Chinese government is clamping down on gaming. While this is not confirmed, we would not be surprised to see no or slow approvals for 2019 because of an ongoing restructure of the administrations governing this space. While the approval process of new game titles remains cloudy in the near term, we think revenue could be less impeded going forward because Tencent has a pipeline of 15 games approved for launch, of which five are expected in the third quarter. Tencent has a chance to see its gaming revenue pick up.

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