Tencent Stock Fairly Priced / BEST AI STOCK TO BUY!

Good day fellow investors. Tencent stock analysis. When it comes to a business like Tencent that is compounding especially the underlying business situation constantly scaling on its ecosystem and you see the stock going nowhere for 5 years you know it's time to take a deeper dive because when it comes to 10 cent it's simply everything. its communication network, payment, games, digital content, movies, stakes in other businesses is practically Zach's wet dream all in one place. And then you look at the business, you look at other hyperscalers, the cheapest ones, Meta P ratio of 20, you have something perhaps stronger long-term. market cap just half a trillion compared to the others P ratio 15 and that might mean opportunity diversification exposure cheaper AI let's see just for context I am constantly researching new investments you will see now an increased number of videos Nike Birkshshire all of Eman's buys Uber Bur's flatter elevator stocks and things like that because I have on my research platform a pretty set personal portfolio, a really well set model portfolio that has been there for eight years. We've been doing around 15% per year on a value investment basis, but to add a little bit more of perspective. Many of you want a more diversified portfolio. We did well with some diversified portfolios in the past, but this time I really going in 100k launch will be now in September. We already have some positions there. So, I'm looking for value stocks to add to a diversified portfolio that will have more than 20 names in that line. I'm looking at 10 cent. You'll get the process video tomorrow. I hold the day after tomorrow to see what might fit that diversified portfolio. By the way, if you're interested in my research platform, this is my marketing video I recently did. You can click on it here in the card or in the link in description below. I will be increasing the price by the end of this year. If you check it now, your price forever will stay where it is now. So, I think that's a good reason to check my platform now. Perhaps test it for a year and then see. Also, there are really three very interesting buys there. Now, if you're interested in the best international broker to access these markets, please check interactive brokers in the link in description below. But let's go to 10 cent. Let's dig into the analysis. And if you like these kind of analysis, there will be plenty more of this channel. Smash that like button. So, let's go into 10 cent [sighs] Shenzen headquarters. Nice building, interesting building. The stock has been compounding for decades now. We'll discuss tomorrow process naspers that bought staken tenscent before the IPO and that's how they make their fortune. But all in all P ratio 15, a dividend yield and good growth ahead. For US investors, you can also buy the ADR in US dollars. same principle there's nothing to think about pretty good liquidity I also think which is also always the issue with ADRs if we go to the business for me Tenset is simply a hyperscaler perhaps with even a bigger mode because I feel that they could make more money on the fintech they could make more money on the social networks but they are not pushing it like Facebook is doing with hundreds of ads because they just want to Keep the mode first. Keep the number one, number one, number one, number one, number one, number one in the system and then just spin this fly wheel. So in practice it is WeChat, Alipe, this that gaming all in one place and they are focused on steadily growing. Their revenue over time was a little bit slower 2023, 2024. Now then again double digits slower but it keeps on compounding. A big part of their business are games 32% of revenues and that has been pretty stable. 40% 3 years ago both international and domestic now a little bit higher but that depends on the launches on the games. I'm not a gamer so you will know much more than me on this situation. On top of everything, on top of the social networks and the gaming, there are the marketing services with AI that helps also Facebook and others, they can grow it at 22%. Then that might likely continue. There is the fintech. Every transaction that is made mobile, they own 40% of the market in China, they get a small fee on those transactions. So another very strong very stable cash flow machine. Then there are other stakes in Tencent Music stakes in C Limited, Snapchat, Spotify, others connections, Mate One, Billy Billy. A lot of that we'll discuss that a little bit later in the valuation, but we are there. Revenues have been constantly going up, staggering growth over time from a PC situation, delivering and winning on mobile and now turning the situation into growth for AI. If they deliver again, this might look very very well and they have the people to deliver that already in that eco system. Of course, smaller business growth rates in the 40%. Now we are down to the 10% perhaps a little bit faster with AI but I would take this 10% as a stabilizing long-term situation. Now here a funny fact quo says that Chinese people 700 million of them are spending two hours on their app. Then we have doin two hours. WeChat 80 minutes. Chinese people are spending five to six hours on average on mobile apps at the gaming. It's not the that it's not anything. It's not the population getting older. They are spending their time playing games and things like that. That's a big risk for a country I think. But apart from the skepticism there and perhaps a joke but not that jokey we can discuss capex huge increase in capex but that's again 7 billion in the quarter. So not at the 70 billion level like others are doing or more but 7 billion just that that's 28 billion for the dominant AI force alongside a Alibaba in China. You can see here the value of the listed shareholdings is 72 billion. The unlisted 50 billion. So that is approximately what 20% of the market cap is in other businesses. That is also something to keep in mind. They are really focused on their own AI model incorporating that into the flywheel. They're also investing as always 200 million in clink AI. the qua show situation. We discussed this in a video, but the stock was much higher when Bur started discussing it. I will update this and some other Hong Kong stocks in the coming weeks and then we can compare. looked a little bit at the conference call focus is AI AI AI their language model improving their language model but also something very interesting they are focused on the cost and this is the first time I see it whenever analyzing hyperscalers because they say there is also clear downside protection they are making the investments they can rent out the infrastructure at cost recover recovery or even better prices if they needed. So again conservative approach there more Chinese way than the gambling in the western way on returns they are not focused as they never been on immediate returns longer term returns there less cash toward buybacks that's something very important to say in this perspective when it comes to tenscent because they were making money dividend dividend growth that stays then they were focused on buybacks that will likely now subdue a little bit and then when they get another more profitability likely return to buybacks but that's the nature of these hyperscaler businesses on the question on earnings profitability they say it's the nature of 10 cent so be patient gross margins growing everything still looks good marketing services fintech and then look at this the margins without the investments in AI those margins would just be going higher and higher. Now the investments in the to position themselves in the market are key but they are still not destroying the current margins even if free cash flow went negative but okay still not at the scale we are seeing perhaps with the hyperscalers in the west with the circle of financing and things like that. Financial position total equity 1.2 2 trillion remimi, a little bit more in Hong Kong dollars. Everything looks good. Not too much debt around what is this? 360 billion should be manageable for the company. They did push it a little bit higher on the buybacks. They started increasing that dividend. The payments went to 75% of net income. that will now likely decline, but we know what to expect in the future. When they start doing buybacks again like this, you might expect a revaluation of the stock price. Let's go to our intrinsic value template. You can download it in the link in description below for free. And as you're checking the description, check also the associated link for interactive brokers if you are looking for a cheaper broker. All right, 10 cent. Just click here. everything goes automatically. And now when it comes to 10 cent, I have taken a very conservative 8% growth rate for the next 10 years, an expected return of 10% a P ratio remaining there at 15 over time. If we put in the earnings per share, the 20% dividend payout, the intrinsic value for that expected 10% return is around 400, not far from the current stock price. Thus at these levels conservatively one can expect a high singledigit return from 10 cent over time. Let me change the discount rate 9% that's it. 8.5% 8% if you expect an 8% then return between 8 and 9% returns. So that is 10 cent. If I go to a 10% growth rate a P ratio of 20 that can always happen in the Chinese boom and bust stock market cycles. then the present value is much higher at 600. If we go to maybe 14% growth on AI, then Tencent is extremely cheap on that. Exuberant for Asia perhaps, but not for the West growth rates. But I'm much more conservative. I stick to 10% and that would be a let's say exuberant scenario. That always happens in five years. You will have a negative scenario and an exuberant scenario. You might sell a little bit in the exuberant buy more. In the worst case scenario, 4% growth rate, 12% terminal multiple that would be a downside of 50% I've just added put it here as worst case scenario 20% situation. But that is something that happens let's say every once in a decade when China suddenly becomes uninvestable. When you see on Bloomberg China is uninvestable that's the time to put more money into China. So all in all likely return around 8% very conservatively calculated. If you want higher returns, then you should wait for lower prices, perhaps a China crisis, some shenanigans from Trump in that relations and you might get it cheaper, but it's already interesting at the current levels. To conclude on 10 cent, very interesting business, has been around for a while, has proven itself for a while. I would say now it is pretty fairly priced for what it's doing, for how it is investing, for what it owns. It looks very interesting from this perspective. It's not an absolute bargain, but if you have a diversified portfolio, it doesn't look bad for a starting position that given the scale it has, if it goes lower, you can happily buy more because you know that long-term you are then just increasing your returns. Thanks for watching. I'll see you tomorrow at Process. Check what I do in the links in the description below.