Tencent share price crashed -43% in 1 year and now trading at HK$3.6 trillion (US$460 billion) market cap with 13x PE, even though the business is still growing:

• TTM Revenue: RMB$788.5 bil (US$118 bil) growing at +11% 2Y CAGR;

• TTM Operating profit: RMB$262.6 bil (US$39.3 bil) growing at +18% 2Y CAGR; and

• TTM Net profit: RMB$235.5 bil (US$35.2 bil) growing at +24% 2Y CAGR.

The biggest problem is Tencent is a China company, which means the company business may remain strong, but still suffer from strong discount. Today’s article will analyse Tencent business, to see if it’s a value trap, or a good investment opportunity.

Background

In China, the people are generally acceptable of the concept of “Superapp”, unlike the Western where they prefer to use one app for one service.

I think this is because China people grew up in a mobile-first economy, and China’s GDP per capita of US$15k (vs Malaysia’s US$16k GDP per capita) means most of China people cannot afford using a good smartphone with higher memory and RAM.

So China people prefer apps that can perform as much function as possible, instead of downloading more apps in their smartphone that has limited memory & RAM.

This culture gives rise to a few Superapp in China:

• Wechat, owned by Tencent;

• Alipay and Taobao, owned by Alibaba;

• Douyin, owned by Bytedance; and

• Meituan (to a smaller extent).

In China, the Big 3 Superapp are famously known as “BAT”, touching the life of every China citizen. The “B” in BAT used to be owned by Baidu, but Bytedance has since replaced Baidu to become the Big 3 in China.

Right now, Bytedance is not listed, but it was said that the company is bigger in terms of revenue and profit, followed by Tencent, then Alibaba.

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