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QuestionsCategory: Financials QuadrantTencent – Shareholders' equity
ashz asked 3 years ago

Hi Victor 
I looked at Yahoo financials https://sg.finance.yahoo.com/quote/0700.HK/balance-sheet?p=0700.HK
and noticed that the debt (242B) is really high! almost the same as shareholders equity (210 B). Is that a cause for concern?

3 Answers
Victor Chng answered 3 years ago

Hi Ashz,
 
I don;t know how yahoo finance collect the figure. From the AR2017 of Tencent, it shows that the debt is 131,905 million and the equity is 256,074. Hence the debt to equity ratio is 0.52x. 

ashz answered 3 years ago

Hi Victor 
I used PE and Price to Cash flow to value Tencents. Please let me know if the numbers / calculations are ok based on the 2017 AR. 
EPS = (Gross profits – Expenses)/No of shares = (116.9B – (17.7B+33B+2.9B+15.7B)) / 9.5B shares = 47.6B /9.5B shares = 5 
current PE ratio = 410HKD/5 = 336RMB/5 = 67.2 
I did the calculations for 2018 to 2014 to see what is the average PE. It seems to be 44.4. I did not know how to get the earnings numbers for 2018 so U just used 5 which was for 2017. If this is the case, seems like PE is higher than average so I shouldn’t buy? I should only buy when PE is about average or lowest? 
For price to cash flow
2017 price to cash flow = 410 HKD / ((106.1B-12.1B RMB)/9.5B shares) = 336 RMB / 9.9 = 33.9 
When I did the average cash flow from 2018 to 2014, I found it to be about 26.5. so again, this is not a good sign? 
 
Thank you! 

Rusmin Ang answered 3 years ago

Hi Ashz,
 
Referring to AR2017, I’d just use Adjusted Net Profit as RMB51.4b (Net Profit RMB71.5b – Other Gains RMB20.1b). So to get the PE multiples, you just need to check what’s the latest market cap then divide that by RMB51.4b. Also, remember to convert Adjusted Profit to HKD as Tencent is traded in HK Stock Exchange. 
 
For companies like Tencent, they are growing very fast. It is unlikely they will trade below PE historical average. What I’d do is, assuming Tencent’s adjusted profit to grow at certain percentage (you will need to assume this. can based it on their historical CAGR growth over past five years) for 3 to five years, then multiply the resultant profit growth by its average PE. You will get your own estimate range for intrinsic value.