Tencent benefits from successful game and achieves the largest increase in market value in China

A hot new online game is boosting investor optimism about Tencent Holdings Ltd., fueling China’s biggest stock surge of 2024.

The company’s shares have risen 28 percent this year thanks to the strong debut of Dungeon & Fighter Mobile, adding $91 billion in market value to its portfolio, more than any other Chinese company. Improved regulatory and economic conditions in the company’s key markets are also driving up expectations.

Analysts’ price targets have risen to their highest in two years, while earnings estimates have risen more than 14% year-to-date to a record high. Options traders are also growing more optimistic, with the put-to-call ratio falling from a recent peak following the launch of DnF Mobile in late May.

“The capital inflows will go to Tencent first,” said Vey-Sern Ling, managing director at Union Bancaire Privee. The stock is rising due to “a more positive outlook as the gaming segment grows again and the advertising business gains market share.”

Tencent’s new blockbuster game exceeds $270 million in 30 days

Tencent has been one of the best-performing companies in the global gaming sector this year, with its Hong Kong-listed shares outperforming peers such as NetEase Inc. and Nintendo Co. In addition, the company has regained its position as Asia’s second-largest stock, now trailing only Taiwan Semiconductor Manufacturing Co.

DnF Mobile has secured the top spot in China’s gaming app rankings since its debut, raising hopes that Tencent has found its next blockbuster. Expectations are also high for Honour of Fight, due out later this year, as well as Squad Busters, the first new game from Finnish subsidiary Supercell Oy in five years.

“Given the current data points, we can expect DnF Mobile to be China’s largest new game launch in 2024 and Tencent’s most commercially successful new game in the last five years,” Goldman Sachs Group Inc. analysts Ronald Keung and Lincoln Kong wrote in a note. The broker has raised its price target on Tencent by 17% since April.

China Game Tracker: Tencent regains its video game magic in China

As part of Beijing’s broader efforts to support markets and businesses, the approval of DnF Mobile in February signaled a looser stance toward the gaming industry after previous tightenings. While China’s economy is still struggling, Tencent’s latest results beat expectations as short videos boosted the company’s online advertising business.

The gaming business could see a margin boost following Tencent’s surprise move to pull DnF Mobile from China’s Android app stores following complaints about high fees. Meanwhile, Huawei Technologies Co. is reportedly considering 20% ​​commissions for its Harmony mobile operating system, well below the industry standard.

“It is very likely that other Android app stores such as Oppo and Xiaomi, which currently charge 50%, will lower their fees to 30%,” said Ivan Su, senior equity analyst at Morningstar Inc. Given the strong pipeline and the government’s “softer regulatory approach,” the general opinion about China’s gaming industry seems to have improved, he added.

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