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Market Report Summary (4 March 2015)

Core Content Overview

This market report provides an analysis of Tencent and other key market players, focusing on their financial performance, business strategies, and stock market data. It also includes insights on the TMT sector and broader market indicators.

Tencent: WeChat Hongbao to Speed Up Mobile Monetization

• Rating: BUY
• Target Price (HK$): 140.0
• Upside: +3.5%
• Market Cap (HK$bn): 1,268
• Total Issued Share (bn): 9.37

Key Highlights

• WeChat Hongbao Campaign: Tencent launched WeChat Hongbao during the Spring Festival, which sparked a nationwide competition with Alipay and Sina Weibo. This initiative lured over 200 million users to link their bank accounts to Tenpay, facilitating mobile payment and enhancing monetization.
• Mobile Payment Growth: With over 200 million registered users for WeChat mobile payment, Tencent is strengthening its ecosystem, including mobile e-commerce, O2O services, travel, film tickets, and internet finance.
• Integrated Promotion: By integrating Tencent's products and super apps like QQ, Tencent Video, and Tenpay, the company is leveraging WeChat's dominant position to accelerate its mobile monetization strategy.
• Mobile Ads Business: Tencent launched news feed ads on WeChat in late 2014, collaborating with major brands such as Coca-Cola, BMW, and Nike. This model is expected to increase ad revenue contributions from 8% in 2013 to 16% in 2015.
• Financial Outlook:
  • Total Revenue (2014F): Rmb78.3bn
  • Total Revenue (2015F): Rmb102bn
  • EPS (2014F): Rmb2.66
  • EPS (2015F): Rmb3.24
• Valuation Metrics:
  • EV/EBITDA (2015F): 22.4x
  • Total Debt/Equity (2015F): 10.56%
• WeChat User Growth:
  • Global MAU: 468 million
  • QoQ Growth: 6.8%
  • YoY Growth: 39%
• WeChat Spring Festival Performance:
  • Total Hongbao Released: 1.01 billion
  • Alipay: 240 million
  • QQ: 637 million

Colour Life Services (1778.HK)

• Total Revenue (2014): Rmb389 million
• Core Net Profit (2014): Rmb148 million
• YoY Growth:
  • Revenue: 67%
  • Net Profit: 188%
• Gross Margin: Increased dramatically due to improved margins in property management and engineering services.
• Market Position: Estimated to be the largest property management company globally by contracted GFA by June 2015.
• Expansion Strategy: Continued consolidation of offline residential community resources with online platforms to build an O2O ecosystem.
• Valuation:
  • 2015F PE: 17.8x
  • 2016F PE: 12.0x

TMT Sector Highlights

• Alibaba: Unveiled a $316 million Taiwan Fund as the government investigated its local operations.
• Cheyipai: Raised $110 million in Series D funding.
• Jia.com: Secured $160 million in Series D funding.
• Huawei: Planning a significant push into the U.S. market for smartphones and wearable devices.
• Xiaomi: Became the top smartphone vendor in China in 2014, surpassing Samsung.

Stock Market Performance (3 March 2015)

HK Equities

• Hang Seng Index: 24,703 (Down 0.7%)
• H-share Index: 11,945 (Down 2.2%)
• Turnover: HK$79.9 billion (34.1% of HSI)
• CBBC, Wrnt: 22.6% (Up 1%)

China Equities

• CSI 300 Index: 3,508 (Down 2.6%)
• Shanghai Composite Index: 11,526 (Down 3.0%)
• Shenzhen Composite Index: 1,645 (Down 1.1%)

Asian Equities

• Nikkei 225: 18,815 (Up 0.1%)
• Korea KOSPI: 2,001 (Up 0.2%)
• Taiwan TWSE: 9,606 (Flat)
• India Sensex 30: 29,594 (Up 0.5%)

US/European Equities

• DJIA: 18,203 (Down 0.5%)
• S&P 500: 2,108 (Down 0.5%)
• NASDAQ: 4,980 (Down 0.6%)
• UK FTSE 100: 6,889 (Down 0.7%)
• Germany DAX: 11,280 (Down 1.1%)
• France CAC40: 4,869 (Down 1.0%)

Key Financial Metrics (Tencent)

Shareholding Structure

• MIH TC Holdings: 33.62%
• Huateng Ma: 9.86%
• JP Morgan: 6.03%
• Free Float: 50.49%

Outlook and Conclusion

• Tencent's Growth Drivers: Continued growth in mobile payment, e-commerce, and online ads, along with its leading position in the mobile internet sector.
• Positive Outlook: The report reiterates a BUY rating for Tencent, with a 12-18 month target price of HK$140, reflecting healthy growth expectations.
• Market Expectations: High expectations for O2O development and revaluation are expected to drive further growth for Tencent in the coming years.