Tencent Holdings (HK: 700) shares are up near 7% on Thursday on the back of their Q4 results. These results, as we can surmise, are good. The bigger question for us as investors outside China is whether this is a company specific result or something that we should generalise across sector or even whole economy?
Just like everywhere else the Chinese economy has suffered from the effects of lockdowns and covid-19. There were also - everywhere - leaps in people moving online as shown by delivery companies, online retailers, new economy companies more generally and so on. As we've also seen everywhere some of that leap in online turned out to be cyclical, not a permanent move to a higher share of the economy. Thus the subsequent collapse of so many new economy stocks as the cyclical nature of the fallback in online became apparent. But now we're back to trend again, so the results we're seeing should be structural in nature, not just that cycle which might disappear again.
Tencent Holdings share price from HK Exchange
Tencent's results are good: “Total revenues were RMB145.0 billion (USD20.8 billion2 ), an increase of 0.5% over the fourth quarter of 2021 (“YoY”).”£ That's showing that the structural change is now catching up with the cyclical effects of lockdown ending. But of course it's profit, not revenue, we are interested in in the end: “Operating profit was RMB39.4 billion (USD5.7 billion), an increase of 19% YoY. Operating margin increased to 27% from 23% last year. - Profit for the period was RMB30.6 billion (USD4.4 billion), an increase of 19% YoY. Net margin increased to 21% from 18% last year” Both profits and margins are up. Tencent has avoided the problem which plagued so many, which was to have the business costs wrong-sized for the level of consumer engagement which actually turned up.
We're, of course, fine with this as a set of results and Tencent's near 50% rise in the past 6 months reflects the general market opinion.
But the bigger question here is whether we think this is generalisable? Is this a set of results specific to Tencent? Or should we think sector-wide, that all of the China online stocks are to show similar gains? Or is it even a commentary upon the entire China economy, that those lockdown problems are over and it's back to the gung-ho growth of the past couple of decades? That's a matter of opinion, of course it is, but is what should probably be informing trading decisions.