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Tencent
- Sector: Technology Media and Telecommunications
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 29 Apr 2025We maintain O/P on Tencent post its decent 4Q24 results, with accelerating topline growth and higher EBITDA margin; FOCF contracted due to a one-off surge in capex for GPUs, but debt metrics remained stable and modest. We expect Tencent’s topline growth to remain steady at a high single percentage in FY25, thanks to its advertising, domestic/international gaming, fintech and cloud segments; we expect EBITDA margin to edge higher to 43% on a favorable revenue mix; we expect FOCF to expand and debt metrics to further improve. We continue viewing Tencent as a core holding in China and Asia IG credits, and we like its 2030/2031/2041 in particular.
Business Description
AS OF 29 Apr 2025- Founded in November 1998, Tencent is a leading provider of Internet value added services in China. Since its establishment, Tencent has ventured into instant messaging, social networking, online payments, digital entertainment, and PC and smartphone gaming. Most recently, it has also forayed into high-tech areas such as artificial intelligence, and cloud computing.
- Tencent's leading Internet platforms in China include Weixin/WeChat (online messaging), QQ Instant Messenger (online messaging), Tencent Games (gaming), Tencent Video/Weixin Video Accounts (video platforms), WeChat Pay (payments), and Tencent Cloud. The combined monthly average users (MAU) of Weixin and Wechat reached 1.38 bn as of 30 Sep 2024.
- In 4Q24, 46% of revenues came from Value Added Services (which consist of Domestic Games, International Games, and Social Networks), 33% came from FinTech and Business Services (e.g. commercial payments and cloud), 19% from Online Advertising and 2% from Others.
- Tencent is currently primarily listed on the Hong Kong Stock Exchange, with a market capitalization of HKD 4.4 tn as of 29 April 2025.
Risk & Catalysts
AS OF 29 Apr 2025While Chinese regulators have adopted a more friendly stance towards tech companies, any regulatory clampdowns abroad and domestically (e.g. antitrust rules, data security, personal information protection laws) may affect Tencent’s business. Tencent’s gaming, music streaming, and online payment units are among those that have come under regulatory scrutiny in the past.
Tencent uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers, which poses regulatory risks. Specifically, VIE transactions involving “change in control” will be subject to antitrust regulatory processes.
US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.
Key Metric
AS OF 29 Apr 2025| RMB bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 25.2% | 27.0% | 31.4% | 29.8% | 25.4% |
| Net Debt to Book Cap | 4.0% | 6.0% | 8.5% | 1.0% | 2.3% |
| Debt/Total Equity | 33.7% | 36.9% | 45.9% | 42.5% | 34.0% |
| Debt/Total Assets | 19.7% | 20.1% | 22.8% | 23.5% | 20.1% |
| Gross Leverage | 1.4x | 1.7x | 1.9x | 1.6x | 1.3x |
| Net Leverage | 0.2x | 0.4x | 0.5x | 0.1x | 0.1x |
| Interest Coverage | 24.8x | 24.7x | 19.0x | 19.9x | 22.5x |
| EBITDA Margin | 38.3% | 34.9% | 34.3% | 38.9% | 42.4% |
CreditSight View Comment
AS OF 20 Mar 2025We maintain O/P on Tencent post its decent 4Q24 results, with accelerating topline growth and higher EBITDA margin; FOCF contracted due to a one-off surge in capex for GPUs, but debt metrics remained stable and modest. We expect Tencent’s topline growth to remain steady at a high single percentage in FY25, thanks to its advertising, domestic/international gaming, fintech and cloud segments; we expect EBITDA margin to edge higher to 43% on a favorable revenue mix; we expect FOCF to expand and debt metrics to further improve. We continue viewing Tencent as a core holding in China and Asia IG credits. We like its 2030/2031 for 10-15 bp of spread pick up against China A SOEs. We prefer Tencent over Baidu/JD, which are rated 1-3 notches lower but trade only marginally wider.
Recommendation Reviewed: March 20, 2025
Recommendation Changed: August 18, 2022
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Search topics about wealth insights and investments.JD.com
- Sector: Media and TelecommunicationsTechnology
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 29 Apr 2025We maintain our Market perform recommendation on JD post its 4Q24 results, where it reported a pick up in topline growth, better EBITDA margin, higher FOCF and improving debt metrics; We expect JD’s debt metrics to improve over the next 12 months as the JD Home Appliance Trade-In Alliance program and expanding supermarket category supports topline growth and a continued expansion of the higher-margin 3P sales and better product mix result in better EBITDA margin; we expect JD to cover its increased shareholder rewards with free operating cash flow. We think its positive credit outlook over the next 12 months has been largely priced in given that JD’s $ bond trades largely in-line with Asia A- corporates; we see better value in BABA and TENCNT.
Business Description
AS OF 29 Apr 2025- JD is one of China's leading e-commerce and retail infrastructure service providers.
- JD has a large fulfillment infrastructure which includes over 1,600 warehouses operated by the company, and 2,000 cloud warehouses operated by third-party warehouse owner-operators under JD Logistics Open Warehouse Platform. Its warehouse network had an aggregate gross floor area of approximately over 32 mn square meters, as of 31 December 2023.
- JD has 3 operating segments, namely (1) JD Retail (84% of 4Q24 revenues), which includes JD Health and JD Industrials, and the segment mainly engages in online retail, online marketplace and marketing services in China; (2) JD Logistics (14%) which includes both internal and external logistic businesses; and (3) New businesses (1%) which consist of Dada, JD Property, Jingxi and overseas businesses.
- JD had a market capitalization of RMB 345.5 bn as of 29 April 2025.
Risk & Catalysts
AS OF 29 Apr 2025While Chinese regulators have adopted a friendlier stance towards tech companies, any regulatory clampdowns may still adversely affect the business of JD (e.g. antitrust rules, data security & personal data protection laws).
Intensifying competition amongst Chinese eCommerce platforms with the entrance of new live-streaming/short-form video platforms and group buying discount platforms may result in slower topline growth and weaker EBITDA margin for JD as its increase its user/merchant incentives and promotional activities to defend its market share.
There are regulatory risks involving the use of variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs). Specifically, VIE transactions involving “change in control” will be subject to antitrust regulatory processes.
Key Metric
AS OF 29 Apr 2025| RMB mn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 12.5% | 12.2% | 19.2% | 18.8% | 22.3% |
| Debt/Total Equity | 14.2% | 13.8% | 23.7% | 23.1% | 28.7% |
| Debt/Total Assets | 7.5% | 6.9% | 10.9% | 10.9% | 12.9% |
| Gross Leverage | 1.4x | 1.8x | 1.9x | 1.5x | 1.7x |
| Interest Coverage | 20.1x | 16.1x | 16.3x | 15.5x | 18.5x |
| EBITDA Margin | 3.0% | 2.0% | 3.3% | 4.1% | 4.6% |
CreditSight View Comment
AS OF 07 Mar 2025We maintain our Market perform recommendation on JD post its 4Q24 results, where it reported a pick up in topline growth, better EBITDA margin, higher FOCF and improving debt metrics; We expect JD’s debt metrics to improve over the next 12 months as the JD Home Appliance Trade-In Alliance program and expanding supermarket category supports topline growth and a continued expansion of the higher-margin 3P sales and better product mix result in better EBITDA margin; we expect JD to cover its increased shareholder rewards with free operating cash flow. We think its positive credit outlook over the next 12 months has been largely priced in given that JD’s $ bond trades largely in-line with Asia A- corporates; we see better value in BABA and TENCNT.
Recommendation Reviewed: March 07, 2025
Recommendation Changed: November 21, 2022
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Search topics about wealth insights and investments.Baidu
- Sector: Media and TelecommunicationsTechnology
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 29 Apr 2025We maintain M/P on Baidu post its in-line 4Q24 results; the contraction in Baidu’s revenues were less than feared thanks to its AI-cloud business, which partially offset the weaknesses in the online marketing and iQiyi segments. EBITDA margin fell and FOCF contracted YoY; debt metrics marginally weakened and net cash contracted. We expect Baidu’s revenue to turnaround in FY25 and EBITDA margin to improve on recovering advertising revenues and the continued strength in its AI cloud business; we forecast its FOCF to expand, but we do not expect the company to significantly reduce its gross debt as the bulk of FOCF would be used for share buybacks. We continue to prefer Alibaba and Tencent over Baidu among A-rated China Tech. For investors looking for exposure in Baidu, we prefer its 2028s.
Business Description
AS OF 29 Apr 2025- Founded in 2000, Baidu started out as a search engine business and began its development into artificial intelligent (AI) since 2010.
- Baidu Core is the main revenue driver of the company (79% of 3Q24 revenues) which provides search-based, feed-based and other online marketing services (total: 56% of 3Q24 revenues), as well as products and services from new AI initiatives (23% of revenues); Baidu's AI initiatives include AI cloud (enterprise & public sector cloud, and personal cloud), Intelligent Group Driving (Apollo Go, Apollo auto solutions, and intelligent EVs under Jidu Auto), Mobile Ecosystem (Baidu App, ERNIE Bot, Haokan and Baidu Post), and other growth initiatives (ie. Xiaodu smart devices powered by DuerOS smart assistant and AI chips).
- iQiyi accounts for the remaining revenues of Baidu; iQIYI is an online video platform with a content library that includes licensed movies, television series, cartoons, and other programs.
- Baidu launched ERNIE bot in Mar-23, a generative AI chatbot powered by ERNIE, Baidu's in-house foundation model.
- Baidu has a market capitalization of RMB 226.5 bn as of 29 April 2025.
Risk & Catalysts
AS OF 29 Apr 2025Any regulatory clampdowns abroad and domestically (e.g. potential US investment ban, antitrust rules, data security and personal information protection laws) may adversely affect the business of Baidu. The interpretation of Chinese laws and regulations involves some degree of uncertainty.
There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).
Baidu has made significant investments into long-term AI-related projects, which may take time to turn profitable. A potential escalation of the US chip restriction could have a material negative impact its AI related business (ie. cloud, ernie bot, autonomous driving).
Key Metric
AS OF 29 Apr 2025| RMB bn | FY20 | FY21 | FY22 | FY23 | FY24 |
|---|---|---|---|---|---|
| Debt to Book Cap | 30.4% | 29.7% | 28.5% | 25.0% | 22.5% |
| Debt/Total Equity | 43.8% | 42.2% | 39.8% | 33.4% | 29.0% |
| Debt/Total Assets | 24.8% | 24.1% | 23.4% | 20.8% | 18.5% |
| Gross Leverage | 2.7x | 3.3x | 2.8x | 2.2x | 2.0x |
| Interest Coverage | 9.8x | 8.2x | 11.4x | 12.1x | 13.7x |
| EBITDA Margin | 28.5% | 22.6% | 26.8% | 29.2% | 29.1% |
CreditSight View Comment
AS OF 19 Feb 2025We maintain M/P on Baidu post its in-line 4Q24 results; the contraction in Baidu’s revenues were less than feared thanks to its AI-cloud business, which partially offset the weaknesses in the online marketing and iQiyi segments. EBITDA margin fell and FOCF contracted YoY; debt metrics marginally weakened and net cash contracted. We expect Baidu’s revenue to turnaround in FY25 and EBITDA margin to improve on recovering advertising revenues and the continued strength in its AI cloud business; we forecast its FOCF to expand, but we do not expect the company to significantly reduce its gross debt as the bulk of FOCF would be used for share buybacks. We continue to prefer Alibaba and Tencent over Baidu among A-rated China Tech. For investors looking for exposure in Baidu, we prefer its 2028s.
Recommendation Reviewed: February 19, 2025
Recommendation Changed: August 31, 2022
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International Container Terminal Services Inc
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Search topics about wealth insights and investments.Alibaba
- Sector: Technology Media and Telecommunications
- Sub Sector: Technology
- Country: China
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Fundamental View
AS OF 29 Apr 2025We maintain our Outperform recommendation on Alibaba post its decent F3Q25 results; topline growth were ahead of expectations thanks to improving monetization of domestic eCommerce and cloud demand accelerated; though, wider losses for international eCommerce weighed on EBITDA margin, and higher capex for cloud/AI led to a fall in FOCF; debt metrics remained modest and net cash expanded. We expect Alibaba’s topline growth (excl. Sun Art and Intime) to accelerate over F4Q25 and FY26; we expect EBITDA margin to stay flat, but FOCF to trend lower on a material increase in capex for cloud; we expect Total debt/EBITDA to remain stable, and Alibaba to maintain its healthy net cash position. We view the credit as a core holding in China and Asia IG; we like its 2030/2031/2035/2041 in particular.
Business Description
AS OF 29 Apr 2025- Founded in 1999, Alibaba is the largest retail commerce company in the world based on gross merchandise volume (GMV) as of 31 March 2023.
- The company's business segments comprise Taobao & Tmall Group (44% of F3Q25 revenue; China e-commerce incl. Taobao, Tmall, Taobao Deals, Taocaicai, 1688.com), International Digital Commerce (12%; incl. Lazada, AliExpress, Trendyol and Daraz), Cloud Intelligence Group (11%; incl. AliCloud, AI), logistic provider Cainiao (9%), Local Consumer Services (5%; incl. Ele.me, Amap), and Digital Media and Entertainment (2%, incl. Youku & Alibaba Pictures) and Others (17%; incl. Freshippo, Fliggy, Alibaba Health, Intelligent Information Platform, SunArt, DingTalk).
- Taobao/Tmall is Alibaba's core business and the main EBITA & cash generation unit of the group. Alibaba's annual active consumer exceeded 1 bn in June-2022.
- Alibaba had a market capitalization of RMB 2.1 tn as of 29 April 2025.
Risk & Catalysts
AS OF 29 Apr 2025While Chinese policymakers have adopted an increasingly friendly stance towards tech platforms, regulatory clampdown (e.g. anti-monopoly guidelines, data security laws, personal information protection laws) may still affect Alibaba as it increases compliance cost. There are regulatory risks given the corporate structure which uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers (ICPs).
Intensifying competition amongst eCommerce platforms may result in slower topline growth and weaker EBITDA margins.
Alibaba does not control Alipay but relies on Alipay to conduct substantially all the payment processing and escrow services on its marketplaces.
US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.
Key Metric
AS OF 29 Apr 2025| CNY BN | FY21 | FY22 | FY23 | FY24 | LTM F3Q25 |
|---|---|---|---|---|---|
| Debt to Book Cap | 12.1% | 11.6% | 12.6% | 13.3% | 17.5% |
| Debt/Total Equity | 13.8% | 13.1% | 14.4% | 15.3% | 21.1% |
| Debt/Total Assets | 8.8% | 8.3% | 9.2% | 9.7% | 12.5% |
| Gross Leverage | 0.8x | 0.9x | 0.9x | 0.9x | 1.2x |
| Interest Coverage | 39.9x | 32.2x | 29.6x | 24.0x | 20.2x |
| EBITDA Margin | 24.9% | 18.5% | 20.2% | 20.3% | 19.1% |
CreditSight View Comment
AS OF 21 Feb 2025We maintain our Outperform recommendation on Alibaba post its decent F3Q25 results; topline growth were ahead of expectations thanks to improving monetization of domestic eCommerce and cloud demand accelerated; though, wider losses for international eCommerce weighed on EBITDA margin, and higher capex for cloud/AI led to a fall in FOCF; debt metrics remained modest and net cash expanded. We expect Alibaba’s topline growth (excl. Sun Art and Intime) to accelerate over F4Q25 and FY26; we expect EBITDA margin to stay flat, but FOCF to trend lower on a material increase in capex for cloud; we expect Total debt/EBITDA to remain stable, and Alibaba to maintain its healthy net cash position. We view the credit as a core holding in China and Asia IG; we like its 2030 and 2031 in particular.
Recommendation Reviewed: February 21, 2025
Recommendation Changed: August 05, 2022
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