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Tencent tipped for strong interim growth lifted by blockbuster mobile games, as shares continue to seesaw

Tencent Holdings had plenty to cheer about early last Wednesday when its shares soared in Hong Kong to an all-time high of HK$328.60 (US$42 cents), a week ahead of the video games and social media titan’s interim earnings announcement.

Most of those gains, however, were quickly wiped out on Friday after China’s online watchdog launched an investigation into Tencent’s WeChat, Weibo Corp’s Twitter-like service and Baidu’s Tieba communications platform for possible violations of the country’s new Cybersecurity Law. Its shares lost 5 per cent to HK$310.60 by the close of trading.

But most remain unfazed and bullish on Tencent, based on recent experience.

Those shares also got hammered early last month, when nearly HK$136 billion of the company’s market value was wiped out, after the People’s Daily newspaper criticised its popular smartphone game Honour of Kings as a “poison” and “drug”, especially harmful to young players.

Shenzhen-based Tencent, the world’s largest games company by revenue, responded by imposing a series of controls to limit the playing time of gamers below 12-years-old and those up to 18 years old.

Soon after that, Tencent’s shares started a steady ascent, while analysts forecast a solid quarter ended June 30, which will have bolstered the company’s interim financials.

“Tencent’s second-quarter results will be a replay of its first quarter,” said Nomura analyst Shi Jialong. “Mobile gaming and pay-for performance advertising revenue [from social media advertisements] likely maintained strong momentum, while display ads remained weak.”

Analyst estimates suggest Tencent should report second-quarter revenue of 52.5 billion yuan (US$7.9 billion), which would represent a 47 per cent increase from 35.7 billion yuan revenue in the same period last year, and up 6 per cent from its 49.5 billion yuan first-quarter revenue this year.

Second-quarter net profit is expected to reach 13.7 billion yuan, according to…

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