China’s largest online gaming and social media network

The technology giant is the largest social media network and online gaming company in China, with growing businesses in online advertising, cloud services and e-payments/e-commerce. Although the monetisation of some of its newer businesses is at an early stage and the majority of revenue is still from gaming, we believe that consumers will eventually start to pay more for services such as videos and music, and corporates should therefore start spending more on advertising.

Tencent has shown it is capable of innovation and proactive in terms of regulations. The platform has grown significantly over the years, but it now faces a more normalised growth outlook as its existing businesses start to mature and the new businesses have yet to reach critical mass. The company is at an early stage of monetisation with most revenues still from gaming, with growing businesses in online advertising, cloud services and e-commerce. It should continue to benefit from the rise in everyday technology and smart devices. We believe that the company has visionary management, is well-aligned with shareholders and has high governance standards. Recent headwinds (e.g. changing regulations, rising competition) are temporary and have made valuations attractive in our view.