Tencent Holdings Ltd is an attractive stock for a growth investor
24/03/2016 • About Tencent Holdings Ltd (
$700) • By InTwits
Tencent Holdings Ltd is a growth stock in Internet industry. Its revenue performance, profitability and healthy financial model stands it out vs. other public companies on the market.
Growth story
Tencent Holdings Ltd showed growth in the last financial year. Tencent Holdings Ltd's revenue surged on 30.3% in FY2015. The growth also happened in EBITDA of 33.3% for the same period.
In the last 3 years the company showed fast revenue growth of 32.8% from 2012 to 2015 annualy. EBITDA surged on 38.4% from 2012 to 2015 annualy.
Tencent Holdings Ltd ($700) financials for the last 5 years
| mln. CNY | 2011 | 2012 | 2013 | 2014 | 2015 |
|---|
| Revenue | 28,496 | 43,894 | 60,437 | 78,932 | 102,863 |
|---|
| Revenue growth, % | | 54.0% | 37.7% | 30.6% | 30.3% |
|---|
| Gross margin, % | 65.2% | 58.5% | 54.0% | 60.9% | 59.5% |
|---|
| SG&A, % | 21.8% | 22.6% | 24.4% | 26.4% | 22.8% |
|---|
| EBITDA | 13,724 | 16,857 | 20,977 | 33,540 | 44,702 |
|---|
| EBITDA growth, % | | 22.8% | 24.4% | 59.9% | 33.3% |
|---|
| EBITDA margin, % | 48.2% | 38.4% | 34.7% | 42.5% | 43.5% |
|---|
| Net Income | 10,203 | 12,732 | 15,502 | 23,810 | 28,806 |
|---|
| Net Income margin, % | 35.8% | 29.0% | 25.6% | 30.2% | 28.0% |
|---|
| |
| CAPEX | 4,052 | 3,970 | 4,881 | 4,319 | 8,485 |
|---|
| CAPEX/Revenue, % | 14.2% | 9.04% | 8.08% | 5.47% | 8.25% |
|---|
| Debt | 11,733 | 10,700 | 15,053 | 36,073 | 65,329 |
|---|
| Cash | 12,612 | 13,383 | 20,228 | 42,713 | 43,438 |
|---|
| Net Debt/EBITDA | -0.1x | -0.2x | -0.2x | -0.2x | 0.5x |
|---|
| |
| ROIC, % | 33.4% | 29.5% | 26.7% | 29.1% | 24.3% |
|---|
| ROE, % | 40.6% | 36.5% | 31.2% | 34.5% | 28.8% |
|---|
Profitability and return on investment
Margin expansion supported EBITDA growth. EBITDA margin increased slightly on 1 pp from 42.5% to 43.5% in 2015. If we look for the longer period the company's EBITDA margin surged on 5.10 pp from 38.4% in 2012 to 43.5% in 2015.
We call Tencent Holdings Ltd an attractive growth stock as together with the growth it delivers high ROIC at 24.3%. During the last three years it dropped - it was 29.5% in FY2012. Average ROIC for the last three years was 26.7%.
Tencent Holdings Ltd's Net Income margin decreased on 2.20 pp from 30.2% to 28% in 2015. In the last 3 years Tencent Holdings Ltd's Net Income margin decreased slightly on 1 pp from 29% in 2012 to 28% in 2015.
Tencent Holdings Ltd operates at ROE of 28.8%. For the last three years the average ROE was 31.5%.
Capital expenditures (CAPEX)
To this fast growth the company had to invest in CAPEX.In FY2015 the company had CAPEX/Revenue of 8.25%. CAPEX/Revenue decreased on 0.795 pp from 9.04% in 2012 to 8.25% in 2015. Average CAPEX/Revenue for the last three years was 7.27%.
Leverage (Debt)
Tencent Holdings Ltd has low debt level at 0.5x Net Debt/EBITDA - at the same time with high growth. In the last 3 years Tencent Holdings Ltd's leverage surged on 0.65x from -0.16x in 2012 to 0.49x in 2015.
Management team
Ma Huateng "Pony" runs Tencent Holdings Ltd as a CEO and Shek Hon Lo "John" is 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, %
| FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Top 5 |
|---|
| China Public Procurement Ltd ($1094) | -78.5% | 5,077.0% | -67.5% | 1,258.9% | |
| China Digital Culture Group Ltd ($8175) | 320.4% | -47.9% | 180.8% | 168.8% | |
| GET Holdings Ltd ($8380) | -4.3% | 13.8% | 2,126.4% | 154.4% | |
| China Healthcare Holdings Ltd ($673) | | -14.8% | -52.9% | 63.1% | 0.3% |
| ABC Multiactive Ltd ($8131) | | -15.2% | -13.2% | 59.4% | -32.4% |
| |
|---|
| Median (19 companies) | 11.2% | 11.9% | 3.7% | 10.7% | 0.3% |
|---|
| Tencent Holdings Ltd ($700) | | 54.0% | 37.7% | 30.6% | 30.3% |
Top companies by Gross margin, %
| FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Top 5 |
|---|
| ABC Multiactive Ltd ($8131) | 73.0% | 86.7% | 83.5% | 86.2% | 82.1% |
| Sino-I Technology Ltd ($250) | 74.2% | 75.3% | 82.7% | 78.8% | |
| AcrossAsia Ltd ($8061) | 78.7% | 70.9% | 73.0% | 72.5% | |
| Pacific Online Ltd ($543) | 69.1% | 71.0% | 70.5% | 67.3% | |
| Forgame Holdings Ltd ($484) | 82.1% | 89.8% | 84.7% | 66.1% | |
| |
|---|
| Median (16 companies) | 62.1% | 65.0% | 65.5% | 56.3% | 41.9% |
|---|
| Tencent Holdings Ltd ($700) | 65.2% | 58.5% | 54.0% | 60.9% | 59.5% |
Top companies by EBITDA margin, %
| FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Top 5 |
|---|
| SUNeVision Holdings Ltd ($8008) | 61.1% | 64.2% | 71.6% | 71.6% | 72.4% |
| GET Holdings Ltd ($8380) | -182.0% | -237.7% | 56.8% | 66.4% | |
| AcrossAsia Ltd ($8061) | 15.4% | 20.8% | 24.2% | 44.7% | |
| China Digital Culture Group Ltd ($8175) | -12.1% | -66.7% | 22.5% | 40.8% | |
| Tradelink Electronic Commerce Ltd ($536) | 42.1% | 38.6% | 33.8% | 33.1% | |
| |
|---|
| Median (20 companies) | 3.0% | 1.4% | 15.2% | 7.3% | -0.9% |
|---|
| Tencent Holdings Ltd ($700) | 48.2% | 38.4% | 34.7% | 42.5% | 43.5% |
Top companies by CAPEX/Revenue, %
| FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Top 5 |
|---|
| SUNeVision Holdings Ltd ($8008) | 14.2% | 7.6% | 10.2% | 62.8% | 12.4% |
| AcrossAsia Ltd ($8061) | 61.2% | 56.6% | 65.9% | 36.3% | |
| China E-Learning Group Ltd ($8055) | 1.3% | 0.0% | 2.7% | 15.3% | |
| Asian Capital Resources Holdings Ltd ($8025) | 0.0% | 0.0% | | 12.2% | |
| Capinfo Co Ltd ($1075) | 1.6% | 17.3% | 13.1% | 9.7% | |
| |
|---|
| Median (20 companies) | 10.8% | 3.2% | 2.7% | 2.7% | 0.2% |
|---|
| Tencent Holdings Ltd ($700) | 14.2% | 9.0% | 8.1% | 5.5% | 8.2% |
Top companies by ROIC, %
| FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Top 5 |
|---|
| Pacific Online Ltd ($543) | 41.7% | 37.9% | 36.4% | 28.6% | |
| GET Holdings Ltd ($8380) | -6.8% | -6.5% | 10.8% | 19.3% | |
| Tradelink Electronic Commerce Ltd ($536) | 19.5% | 22.4% | 18.2% | 17.4% | |
| SUNeVision Holdings Ltd ($8008) | 9.9% | 10.8% | 13.3% | 14.4% | 15.3% |
| China Digital Culture Group Ltd ($8175) | -2.3% | -11.2% | 4.0% | 11.7% | |
| |
|---|
| Median (20 companies) | -2.4% | -6.3% | 3.0% | -3.1% | -2.4% |
|---|
| Tencent Holdings Ltd ($700) | 33.4% | 29.5% | 26.7% | 29.1% | 24.3% |
Top companies by Net Debt / EBITDA
| FY2011 | FY2012 | FY2013 | FY2014 | FY2015 |
|---|
| Top 5 |
|---|
| ABC Multiactive Ltd ($8131) | | | | 9.5x | |
| AcrossAsia Ltd ($8061) | 1.7x | 2.3x | 2.9x | 1.5x | |
| China Digital Culture Group Ltd ($8175) | | | -2.2x | -0.4x | |
| GET Holdings Ltd ($8380) | | | -1.1x | -1.0x | |
| Pacific Online Ltd ($543) | -1.5x | -1.4x | -1.3x | -1.3x | |
| |
|---|
| Median (12 companies) | -2.1x | -1.4x | -1.4x | -1.5x | -1.2x |
|---|
| Tencent Holdings Ltd ($700) | -0.1x | -0.2x | -0.2x | -0.2x | 0.5x |
