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Eye on Tencent Holdings Ltd as a growth stock: its revenue grew 40.4% and EBITDA 34.7% annually over the last three years

25/03/2015 • About Tencent Holdings Ltd ($700) • By InTwits

Tencent Holdings Ltd is a growth stock in Internet industry. It showed noticeble revenue performance in the last years among with attractive profitability and financial model.

Growth story


Tencent Holdings Ltd showed growth in the last financial year. The company's revenue surged on 30.6% in FY2014. Together with revenue growth Tencent Holdings Ltd also managed to keep EBITDA growth. EBITDA grew 59.9% for the same period.

In the longer period Tencent Holdings Ltd showed fast revenue growth of 40.4% from 2011 to 2014 annualy. EBITDA surged on 34.7% from 2011 to 2014 annualy.

Tencent Holdings Ltd ($700) financials for the last 5 years

mln. CNY 2010 2011 2012 2013 2014
Revenue19,64628,49643,89460,43778,932
Revenue growth, %45.0%54.0%37.7%30.6%
Gross margin, %67.8%65.2%58.5%54.0%60.9%
SG&A, %17.7%21.8%22.6%24.4%26.4%
EBITDA10,36513,72416,85720,97733,540
EBITDA growth, %32.4%22.8%24.4%59.9%
EBITDA margin, %52.8%48.2%38.4%34.7%42.5%
Net Income8,05410,20312,73215,50223,810
Net Income margin, % 41.0%35.8%29.0%25.6%30.2%
 
CAPEX1,9454,0523,9704,8814,319
CAPEX/Revenue, %9.90%14.2%9.04%8.08%5.47%
Debt5,29911,73310,70015,05336,073
Cash10,40812,61213,38320,22842,713
Net Debt/EBITDA-0.5x-0.1x-0.2x-0.2x-0.2x
 
ROIC, %46.9%33.4%29.5%26.7%29.1%
ROE, %47.5%40.6%36.5%31.2%34.5%

Profitability and return on investment


EBITDA growth was partly attributed to margin expansion. EBITDA margin surged on 7.80 pp from 34.7% to 42.5% in 2014. If we look for the longer period EBITDA margin dropped on 5.70 pp from 48.2% in 2011 to 42.5% in 2014.

We call Tencent Holdings Ltd an attractive growth stock as together with the growth it delivers high ROIC at 29.1%. During the last three years it dropped - it was 33.4% in FY2011. It's average ROIC for the last three years was 28.4%.

Tencent Holdings Ltd's Net Income margin surged on 4.60 pp from 25.6% to 30.2% in 2014. In the last 3 years Net Income margin dropped on 5.60 pp from 35.8% in 2011 to 30.2% in 2014.

Tencent Holdings Ltd operates at ROE of 34.5%. For the last three years the average ROE was 34.1%.

Capital expenditures (CAPEX)


To this fast growth Tencent Holdings Ltd had to invest in CAPEX.The company's CAPEX/Revenue was 5.47% in FY2014. CAPEX/Revenue dropped on 8.75 pp from 14.2% in 2011 to 5.47% in 2014. It's average CAPEX/Revenue for the last three years was 7.53%.

Leverage (Debt)


The company has negative net debt at -0.2x Net Debt/EBITDA - at the same time with high growth. In the last 3 years leverage surged on 0.13x from -0.06x in 2011 to -0.20x in 2014.

Management team


Tencent Holdings Ltd is headed by Ma Huateng "Pony" as a CEO and by Shek Hon Lo "John" as a CFO.

Peers in Internet


Below we provide Tencent Holdings Ltd benchmarking against other companies in Internet industry for the last 5 years. We show data for the top-5 companies by key financial metric together with the median value for all the companies in the industry.

Top companies by Revenue growth, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top 5
China Healthcare Holdings Ltd ($673)-97.9%-14.8%-52.9%63.1%
ABC Multiactive Ltd ($8131)-1.9%-15.2%-13.2%59.4%
SUNeVision Holdings Ltd ($8008)15.9%11.9%8.3%10.7%
Media Asia Group Holdings Ltd ($8075)401.1%1,124.6%275.6%3.6%
DX.com Holdings Ltd ($8086)80.5%634.3%-0.8%-5.7%
 
Median (6 companies)20.1%-1.4%-7.0%7.1%
Tencent Holdings Ltd ($700)45.0%54.0%37.7%30.6%


Top companies by Gross margin, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top 5
ABC Multiactive Ltd ($8131)72.1%73.0%86.7%83.5%86.2%
SUNeVision Holdings Ltd ($8008)49.8%51.4%53.5%60.5%64.7%
Prosten Technology Holdings Ltd ($8026)76.8%76.3%52.4%47.8%50.8%
DX.com Holdings Ltd ($8086)64.2%55.9%42.8%39.7%39.7%
China Healthcare Holdings Ltd ($673)0.7%50.2%65.8%52.1%28.1%
 
Median (6 companies)57.0%53.7%52.9%50.0%45.2%
Tencent Holdings Ltd ($700)67.8%65.2%58.5%54.0%60.9%


Top companies by EBITDA margin, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top 5
SUNeVision Holdings Ltd ($8008)67.3%61.1%64.2%71.6%71.6%
ABC Multiactive Ltd ($8131)-12.6%-20.3%-3.5%-17.0%21.9%
Media Asia Group Holdings Ltd ($8075)-907.5%-416.5%-30.8%18.6%13.4%
DX.com Holdings Ltd ($8086)8.2%41.8%11.8%6.1%-2.5%
China Healthcare Holdings Ltd ($673)-0.9%-31.3%-99.9%-113.6%-68.7%
 
Median (6 companies)-6.4%-7.0%-17.1%-5.4%5.4%
Tencent Holdings Ltd ($700)52.8%48.2%38.4%34.7%42.5%


Top companies by CAPEX/Revenue, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top 5
SUNeVision Holdings Ltd ($8008)8.0%14.2%7.6%10.2%62.8%
Prosten Technology Holdings Ltd ($8026)2.7%2.1%2.3%2.3%4.4%
Media Asia Group Holdings Ltd ($8075)16.8%15.0%19.9%1.5%2.3%
DX.com Holdings Ltd ($8086)2.5%28.2%0.2%0.3%0.3%
ABC Multiactive Ltd ($8131)2.7%0.4%0.2%0.8%0.1%
 
Median (6 companies)2.7%11.2%3.9%1.9%1.3%
Tencent Holdings Ltd ($700)9.9%14.2%9.0%8.1%5.5%


Top companies by ROIC, %

 FY2010 FY2011 FY2012 FY2013 FY2014
Top 5
SUNeVision Holdings Ltd ($8008)10.6%9.9%10.8%13.3%14.4%
Media Asia Group Holdings Ltd ($8075)-46.1%-87.3%-7.7%-3.3%-5.9%
DX.com Holdings Ltd ($8086)17.1%35.8%45.5%27.1%-16.2%
China Healthcare Holdings Ltd ($673)-12.3%-11.8%-33.4%-16.8%-25.5%
Prosten Technology Holdings Ltd ($8026)-10.4%3.4%-26.7%-42.3%-107.8%
 
Median (6 companies)-10.4%3.4%-7.7%-3.3%-16.2%
Tencent Holdings Ltd ($700)46.9%33.4%29.5%26.7%29.1%


Top companies by Net Debt / EBITDA

 FY2010 FY2011 FY2012 FY2013 FY2014
Top
ABC Multiactive Ltd ($8131)9.5x
SUNeVision Holdings Ltd ($8008)-2.1x-2.7x-2.2x-2.0x-1.5x
Media Asia Group Holdings Ltd ($8075)1.1x-2.6x
 
Median (3 companies)-0.6x-2.7x-1.4x-0.9x-1.5x
Tencent Holdings Ltd ($700)-0.5x-0.1x-0.2x-0.2x-0.2x