Senior Equity Derivatives Trader

Simon Harris

Event-Driven

<ul>
<li>Derivative trade ideas to maintain upside/protect downside in Tencent. Stock is cheap but risks remain </li>
<li>Take advantage of a retracement in implied vols and depressed skew levels to improve payoffs and protect against broader market risk</li>
<li>We look at 3 alternative trades depending on your position and outlook</li>
</ul>


Derivative trade ideas to maintain upside/protect downside in Tencent. Stock is cheap but risks remain 
Take advantage of a retracement in implied vols and depressed skew levels to improve payoffs and protect against broader market risk
We look at 3 alternative trades depending on your position and outlook


EQD | Tencent (700 HK): A Long but Use Options to Mitigate Any Broader Market Risks

Forensic Analyst

Jason Yap, CFA

Forensic Accounting

<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>'s share price retreated 3.2% overnight on news that China would restrict playing time for minors to 3 hours a week - that is, 8pm to 9pm time slots on Friday, Saturday and Sunday, with an extra hour on public holidays.  The share price erased these losses and recorded an intra-day gain of 3.3% by Tuesday's market close, suggesting that regulatory concerns were assuaged by Tencent's affirmation of low single-digit revenue contribution of minors. 
Insight Provider Mio Kato wrote a unique but sensible piece about how the market may have misunderstood the significance of the restrictions, with the implications for the long-term growth of the industry more severe and an appreciation of the relevant issues would come sooner.  A key thrust of the argument is that habit-formation of gaming at an early age would be disrupted to an extent that gaming habits and user time spent do not carry over into adulthood. 
Tencent's gaming revenue is derived primarily from the sales of in-game virtual items and the provision of adjacent services.  In this article, we expand on the above argument by highlighting how the habit-formation disruption not only affects user time spent but also have a knock-on impact with respect to in-game virtual item spending, subscription, and IP consumption. 
Further, Tencent's revenue recognition on the provision of online games heavily depends on management's assumptions of the gamer's usage profile, which was in turn determined based on past gaming habits. This was historically raised as a Key Audit Matter in Tencent's Audit Opinions. Accordingly, we also discuss in this article how the underlying management assumptions might change as a result of the regulations and consequent impact on Tencent's gaming revenues.

Tencent (700 HK)'s share price retreated 3.2% overnight on news that China would restrict playing time for minors to 3 hours a week - that is, 8pm to 9pm time slots on Friday, Saturday and Sunday, with an extra hour on public holidays.  The share price erased these losses and recorded an intra-day gain of 3.3% by Tuesday's market close, suggesting that regulatory concerns were assuaged by Tencent's affirmation of low single-digit revenue contribution of minors. 
Insight Provider Mio Kato wrote a unique but sensible piece about how the market may have misunderstood the significance of the restrictions, with the implications for the long-term growth of the industry more severe and an appreciation of the relevant issues would come sooner.  A key thrust of the argument is that habit-formation of gaming at an early age would be disrupted to an extent that gaming habits and user time spent do not carry over into adulthood. 
Tencent's gaming revenue is derived primarily from the sales of in-game virtual items and the provision of adjacent services.  In this article, we expand on the above argument by highlighting how the habit-formation disruption not only affects user time spent but also have a knock-on impact with respect to in-game virtual item spending, subscription, and IP consumption. 
Further, Tencent's revenue recognition on the provision of online games heavily depends on management's assumptions of the gamer's usage profile, which was in turn determined based on past gaming habits. This was historically raised as a Key Audit Matter in Tencent's Audit Opinions. Accordingly, we also discuss in this article how the underlying management assumptions might change as a result of the regulations and consequent impact on Tencent's gaming revenues. 

Tencent - An Analytical Framework For "Tomorrow's" Gaming Minors

Quantitative Equity Analyst, DMA

Charlotte van Tiddens, CFA

Quantitative Equity Analyst

Technology-First Company

DMA is a technology-first company that provides an end-to-end SaaS solution to institutional investors. DMA enables regulated entities like asset managers, wealth managers, investment managers and financial advisors to connect their front and back office, break silos and reduce headcount.

<ul>
<li>Tencent reported a softer set of results for Q2 relative to Q1. Revenue for the quarter was up 1% QoQ and 8% YoY.</li>
<li>Since our last discount update mid-August, the discounts of both Naspers and Prosus have continued to narrow.</li>
<li>Naspers' discount is trading well off the lows reached at the end of July (~45%). </li>
</ul>


Tencent reported a softer set of results for Q2 relative to Q1. Revenue for the quarter was up 1% QoQ and 8% YoY.
Since our last discount update mid-August, the discounts of both Naspers and Prosus have continued to narrow.
Naspers' discount is trading well off the lows reached at the end of July (~45%). 


Naspers X Prosus Discount Update Post Tencent 2Q FY24 Results, Narrowing Gains Momentum

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Quantitative Analysis

<ul>
<li>We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of August 23rd.</li>
<li>The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.</li>
<li>We highlight flows for Tencent (700 HK), China Mobile (941 HK).</li>
</ul>


We analyze the weekly Hong Kong Connect flows with our data engine for holding position as of August 23rd.
The top stocks by inflows and outflows were tabulated for all market, HSCEI, mid cap and s/mid cap groups.
We highlight flows for Tencent (700 HK), China Mobile (941 HK).


Hong Kong Connect Flows (Aug 23rd): Tencent, China Mobile

<ul>
<li>We analyzed the latest HK SFC report for aggregate short position as of Aug 16th.</li>
<li>Top short increases and decreases were tabulated for one week and four week period. </li>
<li>We highlight short changes in Baba, Wuxi Bio, HSBC, Galaxy Ent, Link Reit.</li>
</ul>


We analyzed the latest HK SFC report for aggregate short position as of Aug 16th.
Top short increases and decreases were tabulated for one week and four week period. 
We highlight short changes in Baba, Wuxi Bio, HSBC, Galaxy Ent, Link Reit.


HK Short Interest Weekly: Baba, Wuxi Bio, HSBC, Galaxy Ent, Link Reit

China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

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Tencent Holdings (ADR) (TCEHY US)

EQD | Tencent (700 HK): A Long but Use Options to Mitigate Any Broader Market Risks

Use derivatives to own Tencent delta through potential market turbulence. Take advatantage of cheap volatility to improve risk reward profile.

Simon Harris

Tencent - An Analytical Framework For "Tomorrow's" Gaming Minors

Tencent's investors' response to latest online gaming restrictions have been measured due to small revenue contribution from minors. We discuss how...

Jason Yap, CFA

Naspers X Prosus Discount Update Post Tencent 2Q FY24 Results, Narrowing Gains Momentum

The discounts of Naspers and Prosus have continued to narrow through August. We provide an update on how the discounts have traded since Tencent...

DMA

Hong Kong Connect Flows (Aug 23rd): Tencent, China Mobile

We analyzed southbound Hong Kong connect flows in the past week and highlighted flows for Tencent (700 HK), China Mobile (941 HK).

Ke Yan, CFA, FRM

HK Short Interest Weekly: Baba, Wuxi Bio, HSBC, Galaxy Ent, Link Reit

We analyzed the latest HK SFC report for aggregate short position as of Aug 16th and highlight short interest changes in Baba, Wuxi Bio, HSBC,...

Ke Yan, CFA, FRM

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