After analysing Tencent’s interim results for this year, PSG Wealth’s team of equity analysts recommend zero-percent exposure based on the following key aspects:
* PSG Wealth believes a high growth rate has already been priced into the valuation and that Tencent is fairly valued.
* Accurate forecasts are difficult to make due to regulations set out by Chinese authorities and due to a slower advertising market. This could negatively affect Tencent’s gaming and advertising operations.
* The group’s price-earnings ratio is trading at a discount to its historical average, however, PSG estimates that growth is likely to be lower than the historical five-year compound annual growth rate of 35%, due to the higher base and the maturity of the online advertising market. PSG believes that a lower P/E multiple is appropriate. Even after the recent price declines in Tencent, the group is still trading at a substantial premium to international peers.