Tencent: Results beat expectations

Tencent’s earnings per share (EPS) beat expectations by 10.7% for 3Q 2023. Actual EPS came in at CNY4.66 compared to expectations of CNY4.21, even though revenue of CNY155 billion was a miss by 0.6%. Positively, revenue growth of 10% from a year ago was driven mainly by its online advertising (+20%) and fintech and business services (+16%) segments.

Its operating profit margin improved to 35.9% in 3Q 2023 from 29.2% in 3Q 2022, as both online advertising and fintech & business services segments are highly scalable.

Markets have Tencent at a Buy call and an average target price of CNY442. This gives investors an implied upside of 35%.

Why this matters to you: Chinese stocks have generally been sold continuously since the beginning of the year due to weak consumer sentiments and the ongoing US-China conflict. Internet stocks such as Tencent seem to still be hot.

Alibaba: Slight beat

Nothing spectacular from Alibaba this round. EPS is only slightly higher by 3.4% against expectations but something noteworthy is that its Single Day sales came out pretty strong recently as it records another record-high volume. However, it does signify a reversal in fortunes after missing expectations by 85% in both 1Q and 2Q of the year. Revenue grew by 9% from a year ago which is a good sign.

Furthermore, its international digital commerce (+53%) and smart logistics (+25%) segments grew sharply, driving the overall company’s fortunes forward.

The market currently has Alibaba at a Buy call and an average target price of CNY122. This implies an upside of 63.8% compared to the current share price of CNY74.4.

Why this matters to you: As mentioned previously, Chinese stocks have been beaten down since the beginning of the year. Alibaba is only trading at a low price-to-earnings ratio of 9.8 times compared to its historical average of 34.6 times, which might make it attractive to take a look at.