Opinions
Gavin Graham
Tencent Holdings Ltd
TCEHY-OTC
HOLD
Sep 27, 2019
$40.890
Stock price when the opinion was issued
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DON'T BUY
Ties to Chinese government? He does not own any Chinese listed stocks for fear of potential US de-listing. The issue is that you do not own the actual company, you own a "variable interest entity" -- a proxy for the underlying stock. If there were an issue that Canada came into conflict with China, your ownership could be in question. He is not willing to put clients into these entities.
DON'T BUY
Challenge with Chinese stocks is when you invest in China, you don't actually hold the shares in your name. From a political perspective, you don't have claim to those assets. Now we have US-China tensions. He'd rather buy one of the multinational companies with operations in China that benefit from the recovery.
BUY
Allan Tong’s Discover Picks TCEHY stock pays only a 0.2% dividend and trades at a high 56x PE. Well, that’s high by video game standards, but minute compared to Amazon‘s 92x. Then again, Microsoft—which owns a small interest in games—trades at 34x, and TenCent’s own PE a year ago stood at 37.44x. TCEHY stock is trading less than US$6 below its 52-week high of $81.35. Read 4 More Alluring Gaming Stocks for the Win for our full analysis.
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TOP PICK
Recommendation to buy on the HK exchange. Price target is in HK$. Wanted exposure to Chinese internet but without the risk of the US delisting. The underlying growth of the Chinese market is significant. A very high growth company with dividends. There is growth in revenue and underlying market. (Analysts’ price target is $787.65)
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BUY ON WEAKNESS
Believes China regulation is heading towards hard science and applied science business models.
Software not viewed as positively in China.
Company will continue to grow.
Current valuation presents good buying opportunity.
Other sectors in China might be better options (those supported by government).
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PAST TOP PICK
(A Top Pick Apr 23/21, Down 39%) Fundamental story is very good. Political interference from the Chinese government has been difficult and made investors shed the name. Political interference from the US by potential delisting. Attractively priced now, but political risk is too high. Sometimes you make a mistake, and it's time to sell.
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A Chinese regulator is looking into it, saying that the music is too restrictive for competition. As always in China, it's what the communist party wants. If they decide to go down on it, they will.