OCBC Securities Research has issued a buy recommendation for Tencent Holdings (700 HK), citing enhanced shareholders’ return and margin expansion.

A dividend of HKD3.40 per share was declared, marking a 42% increase year-on-year. Tencent also accelerated its share repurchase program in 4Q23, repurchasing about 56.3 million shares for approximately HKD17 billion, up from 47.5 million shares and HKD15 billion in 3Q23. The total amount of share buybacks in FY23 reached HKD49 billion, exceeding those in FY22. Looking ahead, Tencent plans to double its share repurchase to over HKD100 billion in FY24.

OCBC Securities Research estimates the fair value of Tencent at HKD428.0, anticipating earnings visibility due to structural margin uplift. The research firm is optimistic about Tencent’s advertising growth and views the upsizing of its share buyback plan in 2024 positively.

With only HKD10 billion utilized year-to-date, OCBC expects the buyback pace to accelerate.

However, OCBC Securities Research advises that patience may be required for the stock’s outperformance, considering that its gaming segment still faces challenges, though 2Q24 could be an inflection point.