Although
wide-moat
Tencent’s
second-quarter
results
were
slightly
behind
our
estimates
(but
in
line
with
Refinitiv
consensus),
we
see
no
reason
to
alter
our
long-term
growth
assumptions,
given
its
growth
engines
remain
intact.
We
therefore
maintain
our
fair
value
estimate
of
HKD
704
per
share.
With
the
core
business
trading
at
around
7%
free
cash
flow
yield,
we
view
Tencent’s
shares
as
very
undervalued.
We
also
believe
the
market
underestimates
the
longer-term
revenue
contribution
from
Video
Accounts
and
the
potential
for
more
operating
leverage
as
the
internet
giant
cements
a
more
efficient
cost
structure.
The
highlight
of
the
second-quarter
earnings
was
the
34%
year-over-year
advertising
revenue
growth.
This
is
even
more
impressive
when
we
consider
the
tepid
macroeconomic
conditions
in
China.
Management
attributed
the
above-industry
growth
to
enhancements
to
advertising
technology
and
increased
monetisation
of
its
short
video
platform
Video
Accounts.
With
ad
load
on
Video
Accounts
running
at
just
a
fraction
of
that
on
Douyin
and
Kuaishou,
we
see
room
for
upside
potential.
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