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Author | Huang Yu
Editor | Zhou Zhiyu
A &#34;dry autumn&#34; in the capital market is stirring up investors' emotions. The Hong Kong stock market, which has always been jokingly referred to as a &#34;value oasis,&#34; is also quickly gaining momentum, becoming one of the markets with outstanding performance in the global market.
Tencent, which has always held the position of a &#34;needle in the sea&#34; in the Hong Kong stock market, saw its stock price surge to a two-year high, with its market value surpassing HKD 4 trillion. Some investment banks remain bullish even after Tencent's significant rise, believing that its market value will exceed HKD 5 trillion.
Timing and momentum. Three years ago, Tencent, which once had a market value of over HKD 7 trillion, entered a long period of decline, with its stock price dropping by nearly 70% from its peak. Since the beginning of this year, Tencent's stock price has accumulated a gain of over 50%, even without this &#34;dry autumn,&#34; Tencent has already resumed its upward trend.
Tencent is a typical example. Before the capital market frenzy, the revaluation of Chinese assets had already begun. If more powerful measures are taken in fiscal policy next, standing at the starting point of a new cycle, Tencent, considered a &#34;top pick&#34; by many investment banks, can also aim for higher levels.
Of course, as the era of rapid growth in the internet industry fades away, it is not easy for Tencent to return to its peak. While the frenzy continues, Tencent's own performance is the key factor for investors to vote. In addition to maintaining the certainty of profitability, Tencent also needs to further open up its imagination space for future development in order to raise its valuation.
Tencent will also be a concrete portrayal of China's structural transformation in the new era, where everything will be very different.
Recovery
Tencent is gradually emerging from the trough. As of October 11th, Tencent's stock price has risen by 50.75% this year, with a market value exceeding HKD 4 trillion.
However, specifically, Tencent's gains this year mainly came before the start of this round of capital market frenzy. Since the beginning of this year, driven by the surge in the Hong Kong stock market, stable performance recovery, a billion-dollar buyback plan, and other factors, Tencent's stock price has risen significantly. Before the start of this round of market rally, Tencent had already accumulated a gain of about 33.2%.
The early recovery of the stock price has to some extent restrained Tencent's gains in this round of market rally.
From September 24th to October 10th, Tencent's cumulative gain was only 13.21%, which was not outstanding. During the same period, SMIC, Dongfang Selection, and others saw gains of 56.83%, 48.64%, Meituan, JD.com had gains of 47.21%, 47.75%, and Alibaba's gain was also at 21.96%.
Some institutional investors believe that this round of market rally is mainly driven by speculative funds, with trading behavior as the main factor, and foreign public funds have not yet entered the allocation stage.
Investors who have long been following Tencent also told Wall Street News that bull markets are all about emotions, and retail investors will only chase highs and sell lows, not likely to buy large-cap stocks like Tencent, thinking they are too big and unlikely to rise significantly, preferring to buy stocks with smaller market caps and greater elasticity.
In addition, some institutional analysts believe that Tencent's main business in gaming will not significantly benefit from the economic cycle, so the smartest strategy is to switch to Meituan in a bull market and switch to Tencent in a bear market, but the difficult part is &#34;you don't know when the bull market starts, nor when it ends.&#34;
In the recent period, the stock price has continued to rise, but it has not stopped Tencent's pace of repurchasing, still conveying confidence in the future to the capital market and investors. Against the backdrop of a surge in the Hong Kong stock market, on October 3rd, 4th, and 7th, Tencent's repurchase amounts in the Hong Kong stock market were HKD 251 million, HKD 137 million, and HKD 502 million respectively, with the highest repurchase price reaching HKD 482 per share on October 7th.
Of course, compared to the previous daily repurchase amount of HKD 1 billion, there has been a decrease. However, some investors have analyzed that due to exchange rules restrictions, the repurchase price of Hong Kong stocks cannot exceed 5% of the average closing price of the past 5 trading days. In the case of a significant short-term increase in stock price, Tencent is firmly executing the repurchase plan in a &#34;tight spot&#34;.
In terms of the cumulative repurchase amount, as of the close on October 7th, Tencent has repurchased over HKD 89 billion this year. At the current pace, Tencent is expected to achieve the promised trillion-Hong Kong-dollar repurchase target ahead of schedule this year, doubling the HKD 49 billion repurchase amount from last year.
Continuous repurchases and performance improvements make Tencent still the top holding stock for institutions. Morgan Stanley stated that Tencent exhibits the best risk-return characteristics in the Chinese internet industry. The bank refers to Tencent as a &#34;safe haven&#34; and lists it as the preferred stock in the sector.
Even after the recent rise in stock price, Morgan Stanley still released a research report stating that its valuation remains attractive, raising the target price from the previous HKD 480 to HKD 570, an 18.75% increase, maintaining its status as the bank's preferred stock.
Reassessment
In the era of mobile internet, Tencent is an absolute winner, firmly holding the position of the &#34;king of technology stocks&#34; in China with its two major moats of social and gaming businesses. In early 2021, its stock price once exceeded HKD 700 per share, with a market value exceeding HKD 7 trillion.
However, over the past three years, constrained by internet regulations, sluggish business growth, shareholder reductions, etc., Tencent's stock price has experienced significant fluctuations, with the market value hovering around HKD 3 trillion, and the P/E ratio dropping from over 30 times to less than 9 times at its lowest point.
There have been continuous doubts in the market: Does Tencent still have a future?
Tencent has taken a series of practical actions to consolidate investor confidence and consistently deliver financial reports that exceed market expectations. In the second quarter, the gaming business, as Tencent's moat, showed signs of recovery, with gaming revenue reaching HKD 48.5 billion, a quarterly high, with a 9% year-on-year growth both domestically and internationally, exceeding expectations. Investors have re-evaluated Tencent, driving its stock price higher.
After a more than 50% increase in stock price this year, optimistic investors still believe that Tencent's stock price is undervalued; while cautious ones believe that the valuation level of large-cap stocks like Tencent has approached that of US blue-chip stocks, making it difficult to continue to rise significantly.
Morgan Stanley has recently raised Tencent's target price consecutively, from HKD 450 to HKD 570. By this calculation, Tencent's total market value could exceed HKD 5 trillion once again.
The continued recovery of the gaming business is undoubtedly the main reason why institutions are optimistic about Tencent. Morgan Stanley's report points out that Tencent's gaming business is expected to grow by 12.5% year-on-year in the third quarter, mainly driven by perennial games like &#34;Honor of Kings&#34; and the momentum of new games
CICC released a research report stating that Tencent's high-growth revenue from gaming is gradually being realized, with an expected 16% increase in mobile gaming revenue in the third quarter, compared to about 10% in the first half of the year. The stable business growth is expected to support valuation improvement.
As Tencent's flagship business, gaming is also telling more stories to investors, being Pony Ma's biggest hope for Tencent's international expansion.
Recently, there have been market rumors that Tencent and the Guillemot family, founders of Ubisoft Entertainment, are considering a joint acquisition of the French gaming company Ubisoft Entertainment and privatizing it to stabilize the company and enhance its value. However, this option is still in the early stages and it is uncertain whether the deal will ultimately materialize.
If the acquisition is successful, Tencent Games' global expansion will receive further support, providing Tencent with a different realm of imagination.
Morgan Stanley also pointed out that companies like Tencent, Pinduoduo, and Ctrip are in a favorable position to leverage international opportunities, with the potential for overseas expansion to become a long-term growth driver. &#34;Investors should pay more attention to the global prospects of Chinese internet companies. Although risks related to geopolitical tensions may bring short-term volatility, they may also create buying opportunities.&#34;
Apart from gaming, Tencent's advertising and enterprise services are also expected to achieve higher growth as the economy rebounds. Morgan Stanley noted that recent announcements of a series of national policies in the mainland may promote consumption recovery. Credit Suisse views transactions, enterprise services, and overseas games as Tencent's future growth drivers.
Furthermore, most of Tencent's investment assets are pro-cyclical assets. With the revaluation of Chinese concept stocks in this round, its value can also rise accordingly.
With businesses like gaming already being fully priced in the market, Tencent aims to continue to exceed expectations. Besides strong economic growth, it must also find the key to returning to high growth.
In addition to expanding gaming internationally, the AI wave that has emerged since last year has become a revolutionary opportunity for Tencent. AI can not only be a multiplier for Tencent's business development but also open up new growth opportunities for its B2B business, ensuring it remains competitive in the next super traffic entrance.
This will be crucial for Tencent to return to its peak after surpassing HKD 4 trillion and aiming for HKD 5 trillion. It needs to break free from the constraints of its current valuation by institutions and undergo a revaluation of its value.
Times have changed, and facing a new round of capital feast, Tencent must leverage opportunities, unleash potential, promote sustainable growth, and nurture new growth opportunities to maintain its dominance.
The new journey is full of variables, and Tencent must strive to hold onto its &#34;iron throne.&#34;

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- Tencent's stock has surged over 50% this year, reaching a market value above 4 trillion HKD, driven by a capital market rally and improved performance.  
- Despite this growth, analysts caution that Tencent's main gaming business may not benefit significantly from cyclical trends, and its future valuation depends on sustained profitability and innovative growth strategies.  
- The company is also exploring international expansion opportunities, including a potential acquisition of Ubisoft, which could enhance its global gaming presence and overall valuation.

Stock King Tencent surges again, aiming for a market cap of 5 trillion