Morningstar: TENCENT(00700) has a great opportunity to be removed from the watchlist, fair value maintained at 704 Hong Kong dollars.

Morningstar released a research report stating that TENCENT (00700) has been included in the military enterprise list, which surprised the market and dragged down its stock price in Hong Kong. However, considering that Tencent's business model mainly revolves around social networking and online games, and it is not a state-owned enterprise nor involved in major military projects, it is believed that the company has a good chance of being removed from the list in the future. The report mentioned that being included in the list does not bring about specific sanctions or direct penalties, and it is expected to only cause reputational damage and possibly make other companies hesitant to engage in potential collaborations. Morningstar estimates that Tencent's profit contribution from the United States is in the high single-digit percentage, mainly from gaming revenue, and believes that the potential impact on Tencent's US gaming business in the short term is very small. The bank expects that Tencent's cash flow will not be substantially impacted by this matter, and maintains its fair value forecast at 704 Hong Kong dollars per share, believing that the stock price is still undervalued and continues to be listed as one of the preferred Chinese stocks.