Tencent Holdings Ltd. is experiencing a significant resurgence in investor confidence driven by the success of its latest online game, marking China’s largest stock gain of 2024.
Since the beginning of the year, Tencent’s shares have soared by 27%, largely propelled by the strong debut of Dungeon & Fighter Mobile. This achievement has bolstered Tencent’s market value by $91 billion, surpassing gains of any other Chinese company. Favorable regulatory environments and robust business conditions in Tencent’s key markets have also contributed to heightened investor expectations.
Analyst forecasts for Tencent have reached their highest levels in two years, with earnings estimates surging more than 14% since January to reach record highs. The launch of DnF Mobile in late May prompted a shift in sentiment among options traders, as reflected in a decrease in the put-to-call ratio.
Vey-Sern Ling, managing director at Union Bancaire Privee, commented, “Capital inflows will go to Tencent first,” highlighting the company’s positive outlook driven by growth in its gaming segment and expanding market share in advertising.
In the global gaming sector, Tencent has emerged as one of the top performers this year, surpassing gains of peers such as NetEase Inc. and Nintendo Co. It has also reclaimed its position as Asia’s second-largest stock, trailing only Taiwan Semiconductor Manufacturing Co.
Dungeon & Fighter Mobile has quickly risen to the top of China’s game app rankings since its launch, sparking optimism that Tencent may have discovered its next blockbuster title. Anticipation is also high for Honour of Fight, scheduled later this year, and Squad Busters, the first new game in five years from Tencent’s Finnish unit Supercell Oy.
Goldman Sachs Group Inc. analysts Ronald Keung and Lincoln Kong noted, “Given current datapoints, we believe it is reasonable to conclude DnF Mobile will be China’s biggest new game launch in 2024 and Tencent’s most commercially successful new game in the past five years.” The brokerage firm has raised its price target for Tencent by 17% since April in response to these developments.
Amid broader efforts in Beijing to bolster markets and business activities, the approval of DnF Mobile in February signaled a more lenient stance toward the gaming industry following previous regulatory tightening. Despite ongoing economic challenges in China, Tencent’s recent financial results exceeded expectations, driven in part by strong performance in short-form videos and online advertising.
Tencent’s gaming business could see improved margins following its decision to withdraw DnF Mobile from Chinese Android app stores amidst complaints about high fees. Additionally, Huawei Technologies Co. is reportedly considering reducing commissions on its Harmony mobile operating system, potentially setting a new industry standard.
Morningstar Inc. senior equity analyst Ivan Su remarked, “There is a high likelihood that other Android app stores like Oppo and Xiaomi, which currently charge 50%, will lower fees to 30%.” He highlighted improved consensus on China’s gaming industry outlook, buoyed by a promising game pipeline and a more accommodative regulatory environment.
Meanwhile, Apple Inc. reported a 40% increase in iPhone shipments in China for May, continuing a recent uptrend supported by aggressive discounts from major retailers ahead of the country’s June shopping festival.
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