Please refer to page 11 for important disclosures and analyst certification, or on our website
macquarie/research/disclosures.
HONG KONG
700 HK Outperform
Price (at 23:41, 10 Dec 2017 GMT) HK$394.00
Valuation HK$450.00
- Sum of Parts
12-month target HK$450.00
Upside/Downside %+14.2
12-month TSR %+14.5
Volatility Index Low
GICS sector Software &
Services
Market cap HK$bn3,743
Market cap US$m479,489
Free float %58
30-day avg turnover US$m1,980.2
Number shares on issue m9,499
Investment fundamentals
Year end 31 Dec2016A 2017E 2018E 2019E
Revenue bn 151.9 241.6 335.1 436.2
EBIT bn 56.1 83.1 100.1 125.8
EBIT growth % 38.1 48.0 20.5 25.7
Reported profit bn 41.1 66.1 79.3 100.5
Adjusted profit bn 45.4 65.5 87.3 109.1
EPS rep Rmb 4.33 6.93 8.29 10.45
EPS rep growth % 41.8 60.0 19.5 26.1
EPS adj Rmb 4.79 6.87 9.12 11.35
EPS adj growth % 39.4 43.4 32.7 24.5
PER rep x 77.1 48.2 40.3 32.0
PER adj x 69.8 48.6 36.6 29.4
Total DPS Rmb 0.54 0.78 1.03 1.29
Total div yield % 0.2 0.2 0.3 0.4
ROA % 16.0 18.7 18.5 19.3
ROE % 29.5 30.1 30.7 29.7
EV/EBITDA x 46.3 33.3 28.4 23.2
Net debt/equity % 1.1 4.2 -13.0 -28.5
P/BV x 17.0 12.9 10.0 7.8
700 HK rel HSI performance, & rec
history
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, December 2017
(all figures in Rmb unless noted, TP in HKD)
Analyst(s)
Wendy Huang, CFA
+852 3922 3378wendy.huang@macquarie
Marcus Yang
+86 21 24129087marcus.yang@macquarie
Ivy Luo, CFA
+852 3922 1507ivy.luo@macquarie
Frank Chen
+852 3922 1433frank.chen@macquarie
11 December 2017
Macquarie Capital Limited
Tencent
The digital entertainment empire
Conclusion
the success formula for Tencent. After establishing its leadership in social
media, it has over the past few years been enhancing its content portfolio.
Announcements the cross-shareholding deal between Tencent Music and
Spotify on 8 Dec and its exclusive rights to operate PlayerUnknown's
Battlegrounds (PUBG), the worldˉs hit PC game this year for China on 22 Nov,
will further expand Tencentˉs digital entertainment kingdom.
Impact
Last Friday, Spotify and Tencent Music announced they were buying minority
stakes in each other for cash. In addition, Tencent will invest in Spotify
through secondary purchases. We believe this deal between the worldˉs two
most popular music-streaming platforms will help to form a borderless music
ecosystem that will enhance both playersˉ licensing negotiation power and
product lines. According to Zhi Yan Consulting, China has over 524m digital
music users,
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