A financial valuation of Tencent Holdings Limited

Information technology has changed people’s lifestyle. With PC and mobile devices, people can use software or applications to communicate instead of communicating face to face. Without such tools, people need to research the information in a library or by a survey. Now people can use the online search engine to study the data more conveniently. The style of entertainment has also changed because people can enjoy movies and listen to music at home or even outdoors.
The Internet industry in China has experienced significant growth in the past decade, and different types of IT companies have been set up. Nowadays, the “BAT” are the most popular IT companies in China, which are Baidu, Alibaba, and Tencent. Tencent Holdings Limited is the number one Internet service provider in China and is listed on the Hong Kong Stock Exchange. Tencent divided its business into three categories: value-added services, online advertising, and others such as payment services and cloud services. Tencent has a vast amount of user base which is over 860 million in China.
The objective of this study is to find out the intrinsic value of Tencent on 31 December 2016. This study will conduct a company overview, an industry analysis, an economic outlook and a historical financial analysis and it will forecast the business performance in the next 10 years based on those analyses. This study will apply three discounted cash flow models to determine whether the intrinsic value of Tencent was overvalued or undervalued on 31 December 2016.