DCF Studio

    0700.HK · HKG · Communication Services

    Tencent Holdings Limited

    Also onConsensus Drift

    Implied value per share

    HKD 559.71

    Market price

    HKD 419.00

    Implied upside

    +33.6%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case · CNY model at 1.1708

    AdjustedReports in CNY, trades in HKD. Modelled in CNY, converted at the end.
    NoteRisk-free rate is an assumption: HKD assumption - no free live source available for this market.

    Value Per Share

    Perpetuity growth
    HKD 559.71+33.6%
    Exit multiple
    HKD 612.55+46.2%
    Market price
    HKD 419.00

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (CNY). Outflows negative.

    0bn155bn309bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayCNY
    LineFY26FY27FY28FY29FY30CAGR
    RevenueCNY 832.0bnCNY 920.8bnCNY 1019.1bnCNY 1127.9bnCNY 1248.3bn+10.7%
    EBITCNY 233.9bnCNY 258.9bnCNY 286.5bnCNY 317.1bnCNY 351.0bn+10.7%
    NOPATCNY 195.3bnCNY 216.2bnCNY 239.2bnCNY 264.8bnCNY 293.1bn+10.7%
    Add depreciation & amortisationCNY 79.1bnCNY 87.5bnCNY 96.9bnCNY 107.2bnCNY 118.7bn+10.7%
    Less capital expenditureCNY -96.8bnCNY -107.1bnCNY -118.5bnCNY -131.2bnCNY -145.2bn+10.7%
    Less increase in working capitalCNY 28.3bnCNY 31.4bnCNY 34.7bnCNY 38.4bnCNY 42.5bn-10.7%
    Free cashflow to firmCNY 206.0bnCNY 228.0bnCNY 252.3bnCNY 279.3bnCNY 309.1bn+10.7%
    Discount factor0.95790.87900.80650.74010.6791-
    Present valueCNY 197.3bnCNY 200.4bnCNY 203.5bnCNY 206.7bnCNY 209.9bn+1.6%
    Present Value Of The ForecastCNY 1017.8bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate3.20%HKD assumption - no free live source available for this market (assumption)
    Equity risk premium7.00%Market assumption
    Beta0.826Reported 0.740, pulled toward 1.0 (Blume)
    Cost of equity8.98%Risk-free + beta x equity risk premium
    Cost of debt5.20%Assumed: risk-free + 2bp (interest expense not reported)
    Market capitalisationCNY 3774.7bn100.0% of capital
    Total debtCNY 0.000.0% of capital, book value as a proxy
    Tax rate16.5%Effective, capped at statutory
    WACC8.98%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareCNY 478.05

    75% of EV

    Forecast FCFF, final year
    CNY 309.1bn
    Capex at depreciation, working capital in reinvestment
    CNY 345.4bn
    Less reinvestment at g/ROIC (19.8% of NOPAT)
    CNY -68.4bn
    Capitalised
    CNY 276.9bn
    ROIC (reported)
    12.6%
    Terminal value, undiscounted
    CNY 4380.2bn
    Terminal value, discounted
    CNY 2974.6bn
    Enterprise value
    CNY 3992.4bn
    Less net debt
    CNY -426.8bn
    Equity value
    CNY 4419.1bn

    Exit at 10.6x EBITDA

    Value per shareCNY 523.19

    77% of EV

    Terminal value, undiscounted
    CNY 4994.7bn
    Terminal value, discounted
    CNY 3391.8bn
    Enterprise value
    CNY 4409.6bn
    Less net debt
    CNY -426.8bn
    Equity value
    CNY 4836.4bn

    Spread between methods: 9%.

    Sensitivity

    Value per share (CNY) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    6.98%611.60636.84667.47705.52754.18
    7.98%523.84538.43555.49575.77600.34
    8.98%459.60468.24478.05489.35502.51
    9.98%410.55415.65421.30427.63434.79
    10.98%371.88374.79377.93381.34385.09

    Outlined: this model. Green text: above today's price of 357.87. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year10.7%3.5%-7.2pp
    EBIT margin28.1%19.2%-9.0pp
    Discount rate9.0%11.5%+2.6pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.