TENCENT Stock Analysis (NEW) | Is Tencent (TCEHY) a BUY NOW?| (Ray Dalio)| Best Growth Stocks to Buy

[Music] hello everyone it's david here and welcome back to learning finance in today's video guys i ain't gonna do a fundamental analysis and valuation about another giant chinese company which is 10 cent holdings ticker symbol if you are in the us or in europe is this one t-c-e-h-y and where if you are in asia probably you have the direct access to the hong kong stock exchange and you can buy directly from there after my previous video that i did on alibaba which has had great success actually for a small channel like mine i think you quite like big chinese companies like now as there are investors huge investors like ray dalio that they say that not investing in china is very risky so they are quite bullish in china for what will come in the next decade in terms of macro economics and chinese development so once again let's see this one uh which is one of the greatest company in china it's a buy today or not what is the fair price of this stock we are gonna see that the only thing i ask you guys as always is to leave me a like and really like it's very very important for my channel as it's a very small channel you help me to grow and reach more people and subscribe to the channel so you don't miss any new updates let's begin so first of all how 10 cent makes money uh now i try to in my mind to compare this company to kind of u.s companies but in my opinion it's too diversified to try to understand it's like you have facebook together with something from the gaming industry and then also the cloud business so it's really really great and well diversified and basically all almost all of its business is made online and that means high margin and which i love it so here we have the revenue by segment and 54 percent is from internet value added services so here we find also games basically if you have played fortnite one time in your life well it's hold uh by 10 cent holdings okay epic games as well as supercell so clash of clans all these kind of mobile phone games which are very interesting because studies and statistics says that people tend to spend more on mobile games so very interesting as well and then we have the orange part which is fintech and business services and then we have the gray one which is online advertising and the two percent of all the revenues now 10 cent holdings also has wechat which is the most popular way to chat in china basically it's like what's up is for us and europe so very very great and very diversified company which can make money from different sectors and also from the cloud business which is here in the orange part they also have that and it's growing when we take a look at revenues from 2010s or historical revenues we realized that the stock literally just went almost parabolic over the last 20 years we started in 2010 with quite a small revenue below 3 billion dollars 2.9 and going up going up until 2019 with 54.5 billion dollars and now the estimates are actually for 2020 73.2 billion dollars and then 90.4 billion for 2021 so very great in terms of revenues growth and it's more than 30 percent here and another 25 for 2021 and that's something you really like when you want to invest in a growth company so very nice that let's take a look at 2020 earnings so the blue one are actual data that we have and then the the green one is an expectation for the end of december 21st so we have 15.2 in q1 that was the hearth of the pandemic so that china has been hit especially in the first part of 2020 and then it has been growing that's very positive now 16.2 in q2 we just had earnings 18.4 in q3 and then the expectation is almost 20 billion for the fourth quarter of 2020. now let's take a quick look at the financials of tencent holdings now first of all uh here is the revenue from 2019 i have already showed you that very great net margin uh 24.73 in 2019 then here is the interesting part this is from june 2020. they have just released earnings however i haven't been able to find the balance sheet in us dollars so this is just from q2 anyway nothing has changed drastically current assets 48.1 billion current liabilities 35.9 billion giving us a current ratio of 1.34 which is very great even better is the total ratio which is 2.10 because 10 cent holdings has a total assets of 163.6 billion total liabilities of 78 billions so no risks of financial distress in this very moment the company is very solid the debt to equity ratio 42.67 however uh they have a debt of 36.5 billion and then they have cash and cash equivalents which is above that okay just with cash they have more than 37 billions so the net debt to equity ratio is zero once again very solid business the market cap today is 708.2 billion and that gives us a book to value of 8.27 now here quickly i have basically the revenue and net income and then net margin from 2010 up until 2019 and then the expectations and we see that overall over the years this 38.61 has been the average growth rate of ten cent holdings which is a lot and then the net margins as an average is 28.45 as i told you at the beginning usually these online businesses uh they have very high net margins the company makes a lot of money in net income after the revenues uh to value the company i'm gonna use a discount cash flow and i'm gonna use the cash flow to equity the same as i did with alibaba here so if you haven't seen that video guys by the way i leave you the link down in the description after you saw that one go to see that too if you are interested in these big chinese companies now this is the model past five years and i'm gonna try to estimate the next five years so the first two years here we have the analysts expectations and then for 2022 to 2024 i'm gonna use a scenario analysis now as i showed you before uh the growth rate the average historical growth rate is above 38 however considering the fact that today the company is already a 700 billion market cap i'm gonna presume that it won't grow uh at the 30 rate forever okay so my scenarios i consider from 20 to 30 so this is the range to be conservative anyway the company grows even more then we will be happy but when we do valuation i prefer uh personally to be more conservative so let's see what we get now in terms of net margins we see that since 2017 the trend has been going down a little bit however we are still very near 25 so for my analysis i'm gonna try to say well 24.5 until 2022 and then 24 so trying to uh to this line basically to remain quite flat and going down a little bit but i'm i'm not expecting a huge drop in that margin this is why here 24.5 and then 24. so let's see what we get the first scenario guys is a 20 growth rates here we have the free cash flows the estimated and then the terminal value now the requirements i took 10 percent because it's a discounted free cash flow to equity so it's just the equity so some i like to take between 10 and 11 so this case 10 perpetual growth rate 3.50 because the stock has in my opinion a lot of road ahead to continue to grow so that makes sense the 20 scenario debut gives us a today's company valuation of 553 billion 0.8 and basically here we have today's shares outstanding which are 9.58 billion and so we get a fair value of 57.81 and we go to see the 25 scenario same requirements today's company valuation of 617.4 billion and a fair price of 64.4 the 28 scenario fair price today of 68.69 and with exactly the same requirements and then a very optimistic one but they can do it considering that china will in my opinion and not just my opinion but also ray dalio's opinion inevitably uh become the first economy in the world in the next 10 years so 30 scenario fair price today 71.6 dollars per share this is the discounted free cash flow which is a conservative analysis i'm gonna do another valuation with a pe model so the pe valuation and we're gonna see what we get that one the pe one usually it's more speculative so here we have guys uh this is the valuation and we have that to to get the revenues in 2024 so everything here is by 2024 december i took a growth rate scenario and that gives us a total revenue of 180.8 billion dollars net margin i have been even more conservative i took 23 percent so we saw that declining line a little bit 23 percent it makes sense by 2024 debut gives us a net income of 41.8 billions in 2024 now the pe here it comes the magic because that's the historical uh pe ratio of 10 cent holdings basically from 2016 so the last four years we have that on average has been around 44 p ratio for tencent however the average of the internet services industry it's around 32 so 30 from 30 to 32 and because i like to be conservative i took 30 which is very near to also the p ratios that usually uh actually like facebook microsoft and these kind of companies so let's see what we get with that and the market cap you just take the net income multiply it by the p e ratio so you have 1.24 trillion dollars market capitalization by december 2024 and that's very great the shares outstanding i have included a little bit of dilution so from 9.5 billion i said 9.7 billion and then we would have up a price in 2024 of 128.6 dollars and we discount this back today with the same 10 discount rate and we have a fair price today of 87 dollars per share so as you see this one it's more speculative but it makes sense and i have been in my opinion very conservative as well just to show you if you put just for example 38 then you have the this is the fair price today okay but i don't like to be so speculative i prefer to say well the average industry okay of the internet services sector 30. that's it so when we take an average of one two three four five of fair prices we have that the average is basically 70 dollars per share so 69.9 and considering that today the stock is trading at 76.18 we have a premium of 8.9 percent so it's trading at a slightly premium but basically as all the great companies are right now trading at the premium so uh in the previous video that i did about alibaba we see that in this very moment alibaba after the ad group ipo which has been rejected because of leverage problems and things like that so the pressure with the governments and rules alibaba right now is more of a deal if you really like the business for the long term however a 8.9 premium well it's not too much compared with other companies if you like 10 cent and a fair price of 70 and today's price of 76 so is not cheap but it's not overpriced as well so it's a decent price when we take a look at the graph of 10 cent holdings we realized that this is basically the the fair price that i just showed you just an area okay so from let's say 67 to 71 and we see that the share has been in around this area from july basically from this summer now it went up a little bit it came down but overall is not a a big premium so i would say that it's a decent price you're not getting nothing for a bargain so you're paying the full price something even more but it's not too bad so if you're planning to invest in china this is a very great company in my opinion for the long term and this is the analysis so i hope you find this video interesting guys and leave me a comment below tell me do you own tents and holdings are you waiting for a better price or are you planning to buy some uh just write me down below tell me what do you think and leave me a like which is very important i thank you for it and subscribe to the channel and as always guys have a wonderful day

Channel: Learning Finance

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Keywords: stock market, finance, investing, dollar, get rich, stocks, cash, balance sheet, cash flow, fundamental analysis, make money, undervalued stocks, earnings, business, Stocks to BUY NOW, Fair price, Tencent Stock analysis, Tencent Stock, Tencent Holdings (TCEHY), (TCEHY), Buy Tencent Stock, Ray Dalio, WeChat, Best Groth Stocks For 2020, TOP High Growth Stocks, Best Chinese Stocks to Buy, Alibaba (BABA), buy Alibaba, November 2020, Alibaba Cloud Business, Bridgewater, Cloud Business

Id: YQpNFnYfRpY

Length: 16min 29sec (989 seconds)

Published: Fri Nov 20 2020