Tencent’s $145b rally has surprised even bullish analysts

Tencent Holdings' analysts, who have a history of being too bullish, have now been caught off guard by a rally that's gathering pace in Asia's biggest stock.

Tencent has jumped 27 per cent since an October low, adding US$108 billion (S$145.4 billion) to shareholder value. The share price topped HK$405 on Monday (Jan 13) for the first time since 2018, the price at which its biggest shareholder sold about $10 billion worth of shares early that year. It was Hong Kong's biggest-ever secondary offering at the time.

Tencent rose as much as 1.6 per cent on Tuesday to HK$413 before turning lower with the broader market. A series of block trades totaling almost 1 million shares crossed Tuesday at around HK$402, suggesting some shareholders are making the most of the rally to take profit. The stock is trading near the most overbought level since late 2017.

Shares of the Chinese Internet giant are closing in on analysts' consensus target price, something which hasn't happened in nearly two years. It's the most-loved stock in Hong Kong, as none of the 57 analyst ratings tracked by Bloomberg recommend selling the shares. Of the 50 bullish analysts, more than one-third have a 12-month price target that lags its current price.

“The stock is rising partly due to a better earnings outlook,” said Kevin Tam, analyst at Core Pacific-Yamaichi International. “Its gaming product PUBG Mobile has done very well recently and there are some good signs for its new businesses.”

According to researcher Sensor Tower, revenue from PUBG Mobile was the world's highest in December. The game garnered the second-most downloads globally last year. Tencent's Call of Duty: Mobile made it into the top 10 for 2019, despite only being released in October.

Last week, Tencent announced new initiatives to further monetize its social-networking application Wechat, including the launch of more customized tools for users on the , according to CICC. “We expect short-term sentiment to rise on new initiatives but believe the actual impact will be limited,” analyst Natalie Yue wrote in a note.

These good signs came after a bearish quarter. The company's profit plummeted 13 per cent in the third quarter, missing the most-pessimistic analyst forecast, when an economic downturn depressed advertising and prompted charges within its huge portfolio of investments.

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