linesns

>>Employedbyanon-USaffiliateofMLPF&Sandisnotregistered/qualifiedasaresearchanalystundertheFINRArules.
Referto"OtherImportantDisclosures"forinformationoncertainBofAMerrillLynchentitiesthattakeresponsibilityforthisreportinparticularjurisdictions.
BofAMerrillLynchdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.
Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.
Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.
Refertoimportantdisclosuresonpage8to10.
AnalystCertificationonPage6.
PriceObjectiveBasis/Riskonpage6.
LinktoDefinitionsonpage6.
11377586TencentHoldingsLtd.
EstimateChangeBUYHypedeflating;backtofocusonthefundamentalsEquity|HongKong|Internet/e-Commerce15April2014EddieLeung>>+85221617189ResearchAnalystMerrillLynch(HongKong)eddie.
leung@baml.
comBinnieWong>>+85225363458ResearchAnalystMerrillLynch(HongKong)binnie.
wong@baml.
comStockDataPriceHK$526.
00PriceObjectiveHK$687.
00DateEstablished19-Mar-2014InvestmentOpinionB-1-7VolatilityRiskMEDIUM52-WeekRangeHK$243.
00-HK$646.
00MrktVal/SharesOut(mn)US$124,549/1,836.
0MarketValue(mn)HK$965,746AverageDailyVolume7,919,982BofAMLTicker/ExchangeTCTZF/HKGBloomberg/Reuters700HK/0700.
HKROE(2013E)31.
5%NetDbttoEqty(Dec-2012A)-6.
4%Est.
5-YrEPS/DPSGrowth30.
5%/12.
4%FreeFloat37.
0%KeyChanges(CNY)PreviousCurrent2014EEPS10.
8510.
982015EEPS15.
1515.
18Hypedeflating;fundamentalsstillstableAsregulationcoolsdownoncesurgingexuberancesurroundingonlinepayment,whileasectorrotationtotraditionalsectorsalongwithIPOstriggeredastockcorrection,Tencent'sexecutionappearstoremainsoundandstablejudgingfromourrecentdiscussionswithmanagement.
Wenotethat:1)Mobilegames,whichbenefitfromeffectiveuserrecruitmentofitsmobilesocialplatformsandmulti-tiercooperationstructureswithdevelopers,areontracktobeakeyrevenuedriver.
2)ScaleofYixun(eCommerce)willbecontrolledtoeasemarginpressure.
3)O2Owillbeamulti-yearlong-termprojectforTencent,butwon'tbeamaterialrevenuesourceincomingcoupleofyears.
AsthecompanyshiftsawayfromeCtohigher-margingameandsocialbusinesses,welowerour14/15Erevenueforecastsby0.
5%/5.
6%;butraiseEPSupby2%/1%.
In1Q14,investmentgainsshouldoffsettheUS$100m+subsidiesontaxiapps.
Wethinkthestockcancontinuetobevolatileinthenear-termwhileearningsgrowthcatchesupwithanexpandedPE.
WebelievechangesinthediscountrateinarisingrateenvironmentarealsoarisktoDCFvaluation.
Managementreiteratedtheirdeterminationtofocusandsolidifytheiradvantagesinsocialandcommunicationwhilekeepingacloseeyeonupandcomingapplicationsassourcesofdisruption.
Wealsoseedevelopmentinhardware,homeentertainmentandwearabletopotentiallycomplicatethecompetitivelandscape.
Medium-termnoteprogramtoaddfinancialflexibilityTencent'snewlyannouncedmedium-termnoteprogram,whichgivesitflexibilitytoissuenotesuptoUS$5binvariousterms,currencies,anddatestoinvestorswithin12monthsfrom10Apr,mightbepartlydrivenbypositivemarketconditionsafterMoody'supgradetoA3anddoesn'tnecessarilyimplyanyimmediatemulti-billiondollaracquisition.
TheprogramcanalsosupportTencent'sinvestmentstrategyintheShenzhen-basedentitythatseeksabanklicense,whencapitalinjectionisneeded.
Tencentisaminorityshareholderwhichhopestoreduceregulatoryrestrictioninexpandingitspaymentbusinessifthisentityobtainsabanklicense.
Estimates(Dec)(CNY)2011A2012A2013E2014E2015ENetIncome(Adjusted-mn)10,20312,73215,50220,59428,649EPS5.
496.
838.
3010.
9815.
18EPSChange(YoY)26.
8%24.
4%21.
6%32.
2%38.
3%Dividend/Share0.
490.
660.
660.
940.
93FreeCashFlow/Share5.
118.
627.
129.
1814.
45Valuation(Dec)2011A2012A2013E2014E2015EP/E77.
68x61.
92x49.
45x38.
43x27.
79xDividendYield0.
12%0.
16%0.
16%0.
22%0.
22%EV/EBITDA*52.
13x40.
98x31.
84x25.
35x17.
63xFreeCashFlowYield*1.
20%2.
04%1.
69%2.
19%3.
48%*ForfulldefinitionsofiQmethodSMmeasures,seepage7.
CRTencentHoldingsLtd.
15April20142iQprofileSMTencentHoldingsLtd.
KeyIncomeStatementData(Dec)2011A2012A2013E2014E2015E(CNYMillions)Sales28,49643,89460,43778,46097,102GrossProfit18,56825,68632,65944,36062,311SellGeneral&AdminExpense(6,635)(10,511)(15,684)(22,239)(28,727)OperatingProfit11,91415,47919,19423,92135,564NetInterest&OtherIncome185(428)861,702(240)AssociatesNANANANANAPretaxIncome12,09915,05119,28125,62335,324Tax(expense)/Benefit(1,874)(2,266)(3,718)(4,941)(6,812)NetIncome(Adjusted)10,20312,73215,50220,59428,649AverageFullyDilutedSharesOutstanding1,8591,8641,8671,8761,887KeyCashFlowStatementDataNetIncome10,20312,73215,50220,59428,649Depreciation&Amortization2,5082,8684,4155,7327,094ChangeinWorkingCapital1,1771,177(816)141146DeferredTaxationChargeNANANANANAOtherAdjustments,Net(530)2,653(237)(1,791)377CashFlowfromOperations13,35819,42918,86424,67636,267CapitalExpenditure(4,046)(3,657)(5,798)(7,708)(9,326)(Acquisition)/DisposalofInvestments(7,333)(16,277)(2,778)(2,778)(2,778)OtherCashInflow/(Outflow)(3,976)3,664000CashFlowfromInvesting(15,355)(16,270)(8,576)(10,485)(12,104)SharesIssue/(Repurchase)(1,316)119000CostofDividendsPaid(895)(1,225)(1,225)(1,760)(1,760)CashFlowfromFinancing4,373(2,386)29,775(1,760)(1,760)FreeCashFlow9,31215,77313,06616,96926,941NetDebt(879)(2,684)(11,747)(24,177)(46,581)ChangeinNetDebt4,380(1,871)(9,063)(12,431)(22,403)KeyBalanceSheetDataProperty,Plant&Equipment5,8857,4038,78610,76112,993OtherNon-CurrentAssets15,41631,34434,29838,77841,315TradeReceivables2,0212,3544,2865,5646,886Cash&Equivalents12,61213,38353,44665,87788,280OtherCurrentAssets20,87120,77220,20420,20420,204TotalAssets56,80475,256121,019141,183169,678Long-TermDebt3,7339,62240,62240,62240,622OtherNon-CurrentLiabilities2,7992,8202,8202,8202,820Short-TermDebt7,9991,0771,0771,0771,077OtherCurrentLiabilities13,18419,58820,13621,55523,023TotalLiabilities27,71633,10864,65566,07567,543TotalEquity29,08842,14856,36475,109102,135TotalEquity&Liabilities56,80475,256121,019141,183169,678iQmethodSM-BusPerformance*ReturnOnCapitalEmployed29.
8%27.
0%19.
8%17.
5%21.
6%ReturnOnEquity40.
1%35.
7%31.
5%31.
3%32.
3%OperatingMargin41.
8%35.
3%31.
8%30.
5%36.
6%EBITDAMargin50.
6%41.
8%39.
1%37.
8%43.
9%iQmethodSM-QualityofEarnings*CashRealizationRatio1.
3x1.
5x1.
2x1.
2x1.
3xAssetReplacementRatio2.
1x1.
4x1.
3x1.
3x1.
3xTaxRate(Reported)15.
5%15.
1%19.
3%19.
3%19.
3%NetDebt-to-EquityRatio-3.
0%-6.
4%-20.
8%-32.
2%-45.
6%InterestCoverNM44.
5xNMNANAKeyMetrics*ForfulldefinitionsofiQmethodSMmeasures,seepage7.
CompanyDescriptionTencentisaleadingproviderofpremiummessagingservices,InternetVAS,wirelessVASandonlinegamestousers,andadvertisingandecommerceservicestocorporatesinChina.
Theinstantmessenger"QQ"hasthelargestonlinecommunitybasewithover800maccounts.
Otherpopularcommunity-basedproductsincludeWeixin/WeChat,Qzone,Pengyouetc.
InvestmentThesisThestrengthinitsmobileandPCcommunityplatformsofferslong-termgrowthopportunities,whilethecompanyisinvestingforlong-terminitiativeslikesearch,videoandeCommerce.
Weexpectnear-termmarginpressureamidsolidtop-linegrowthasrevenuemixshiftstolower-marginsegments.
Ontheotherhand,thecompanyisstillarmedwiththelargestonlineuserplatforminthecountryandcontributionfrommobileonlinegamescanhelptooffsetmarginpressure.
StockDataPricetoBookValue13.
7xCRTencentHoldingsLtd.
15April20143MoreaboutboringfundamentalsMobilemonetization:gamestoprecedemarketing;paymenttobeamulti-yearprojectAsthecontributionfrommobileO2Opaymentislikelytoremainlessthan5%inthecomingcoupleofyearsduetolowcommissionrates,wethinkthehypesurroundingmobileO2Opaymentshouldbegraduallydeflating.
Despitethebigmarketpotential,itwilltakemultipleyearstodevelopthescaleandbuilduppartnership/merchantnetworks.
Weexpectanadditional1pptofextragrowtheachyearfromthepaymentbusinessandmobilegamestobethekeybusinessmodeltomonetizesmartphoneusersinthecomingtwotothreeyears:PCgamesgenerated~45%ofsalesforTencentin4Q13andweexpectmobilegamestogrowfrom~4%in4Q13to~25%bymid-15.
Mobilegamedailyactiveusersof100m+onTencenthavealreadybeenmorethanPCgamedailyactiveusers.
Conversionratesofmobilegamerstopayingusersareinsingledigit,whichissignificantlylowerthanPCgameindustry'smid-teens.
Weseethisdifferencetobepartlystructuralduetodifferencesingamegenresanduserdemographics.
However,thediscountsinARPU,ofwhichmobilegameswere30-50%in4Q13toPCgames,areexpectedtonarrowdowngoingforwardassomehardcoremobileonlinegamesintheindustryareabletogenerateARPUcomparabletoPCgames.
MobilegameshavebettermarginsthanPCgamesduetoabiggermixofinhousegames,andrecognitionofrevenuesonanetbasisexcludingchannelfeespaidtoAppleAppStore.
Tencentalsosawexamplesoftherepeatcustomerratesofmobilegameslaunchedonsocialplatformstodoublethatofgameslaunchedpurelyviaanappstore.
Forlong-tailgames,Tencentoffersthealternativeofusingitsappstorefordistribution(insteadofitsmobilegamecenteronMobileQQandWeixin).
Wethinkitsappstorewillnotbeathreattothetoptwo,BaiduandQihoo,duetofewerheavyusers,butwillgenerateincrementalprofitsforthecompanyonbackofdecentmargins(35%+).
Tencentplanstooffermorepaidmarketingsolutionsandvalue-addedservicesforWeixinpublicaccountsinthefuture.
Inthemeantime,itcontinuestoseegooddemandfromadvertisers,especiallyeCommerceandonlineservices,foritsperformance-basedadinventoryonapplicationsotherthanWeixin.
ThecompanyisaddingmoremobileadinventoryincludingMobileQzoneandMobileQQandistestingadsonpublicaccounts.
Weforecastperformance-basedadvertisingtogrowto55%ofitsadsalesin15E,upfrom40%in13,andtheoveralladsalestogrowat13-15ECAGRof59%toaccountfor13%oftotalsales,upfrom8%in13.
AlthoughsocialmediahasbecomeanimportantonlinechannelforadvertisersinUS,reaching11-13%ofonlineadsin13accordingtoeMarketerandourUSInternetteam,thereisstillalackofsocialplatformswithbothreachandaccuracyinChina.
Weestimateonly~5%ofonlineadsrelatedtosocialads.
TencentandSinaWeiboareprobablytheonlytwowithenoughreachtoservetherequirementofmostlargeadvertisers.
CRTencentHoldingsLtd.
15April20144RiskofrisinginterestrateenvironmenttovaluationAspointedoutbyourequitystrategyteam,thereisarisktovaluationofgrowthstocksamidtighteningliquidityandrisinginterestratesasgrowthstocksdependonfutureearningsandcashflowsandwouldbesensitivetochangesindiscountrates(seethesensitivityanalysistablebelow).
WealsonotethatChineseInternetstocksperformedwellin2013,butafteraperiodofsignificantdepressionduring2011and12.
Table1:RisktoDCFvaluationfromchangesininterestrateenvironmentChangeinWACCWACCPriceobjective(HK$)-3%6%2565-2%7%1292-1%8%868BaseWACC9%6871%10%5292%11%4443%12%384Source:BofAMerrillLynchResearchChart1:PerformanceofbasketsofselectInternetcompaniesindifferentcountriesSource:Companydata,Bloomberg,BofAMerrillLynchResearchChina:Baidu,Tencent,Sina,Sohu,Netease,Ctrip,Giant;US:eBay,Google,Yahoo,Amazon,InteractiveCorp,Expedia,Priceline,Activision;Korea:NcSoft,Naver,Daum,CJShopping,Neowiz;Japan:YahooJapan,Rakuten,GREE,DeNA,StartToday,Mixi,Kakaku,CyberAgent,Cookpad0501001502002503003501/1/20102/1/20103/1/20104/1/20105/1/20106/1/20107/1/20108/1/20109/1/201010/1/201011/1/201012/1/20101/1/20112/1/20113/1/20114/1/20115/1/20116/1/20117/1/20118/1/20119/1/201110/1/201111/1/201112/1/20111/1/20122/1/20123/1/20124/1/20125/1/20126/1/20127/1/20128/1/20129/1/201210/1/201211/1/201212/1/20121/1/20132/1/20133/1/20134/1/20135/1/20136/1/20137/1/20138/1/20139/1/201310/1/201311/1/201312/1/20131/1/20142/1/20143/1/20144/1/2014ChinaUSKoreaJapanMSCIChinaCRTencentHoldingsLtd.
15April20145MixshifttounexcitingbutprofitablebusinessesAfterrestructuringofthesearchandeCommercesegments,TencentshouldseesomecushiononitsmarginsasrevenuemixcomesmorefromprofitablebusinesseslikePCgames,mobilegames,socialnetworkplatformandadvertising.
WebelieveWeixinhaspassedtheinitialfastrampstageandwillgrowsteadilyalongwith3G/4GuserbaseinChina.
TencenthasindicateditsfocusonoverseasmarketswhicharestillevolvingwithoutastrongincumbentinmobilecommunicationtoolssuchasMalaysia,IndiaandIndonesia.
Chart2:RevenuemixshiftingtounexcitingbutprofitablebusinessesSource:Companydata,BofAMerrillLynchChart3:UsergrowthmomentuminlinewithmostotherleadingsocialplatformsSource:Companydata,BofAMerrillLynch05,00010,00015,00020,00025,00030,00035,00040,00045,00050,000FY11FY12FY13EFY14EFY15EOnlinegamesNon-gameIVASMobileservicesAdvertisingEcommerceOthersRMBmn-10%-5%0%5%10%15%20%25%30%35%40%QoQRenren(MAU)Facebook(MAU)TencentWeixin+QQ(MAU)Twitter(MAU)YY(MAU)SinaWeibo(MAU)CRTencentHoldingsLtd.
15April20146Priceobjectivebasis&riskTencentHoldings(TCTZF)OurPOofHK$687isbasedon1)DCFvaluationofHK$683with9%discountrate,mid-term15-18EFCFCAGRof20%and5%terminalgrowth,2)HK$4fromitsstakeinSogou,valuedat5x14ESales(50%discounttotheaverageP/Salesof9.
5xoflargerpeers).
RiskstoourPOare1)DisruptionofgrowthofWeixinbytelcos,2)Competitiononpaymentbusiness,3)Competitiontolimitoverseasgrowth,4)Regulationononlinefinance,onlinegames,instantmessaging,wirelessservices,aswellaswebsitecontent,particularlyvideoandblog,wouldhurtusageand,therefore,reducemonetization,5)FasterthanexpecteddeteriorationinPCgamessuchasDNF,6)Destructiveapplications.
NewtechnologydevelopmentsmayreduceusageofTencentusersorresultinuserchurn,7)Expensesfordevelopinginitiativesincludingecommercebuthighmarketexpectationonmargins,8)Consolegames,9)RisinginterestratesonDCFvaluation,10)ChinaopeningupmarkettooverseasSNSsitesLinktoDefinitionsTechnologyClickherefordefinitionsofcommonlyusedterms.
AnalystCertificationI,EddieLeung,herebycertifythattheviewsexpressedinthisresearchreportaccuratelyreflectmypersonalviewsaboutthesubjectsecuritiesandissuers.
Ialsocertifythatnopartofmycompensationwas,is,orwillbe,directlyorindirectly,relatedtothespecificrecommendationsorviewexpressedinthisresearchreport.
APR-OnlinemediaCoverageClusterInvestmentratingCompanyBofAMerrillLynchtickerBloombergsymbolAnalystBUYBaidu.
comBIDUBIDUUSEddieLeungBonaFilmGroupLimitedBONABONAUSAngelineOoiCtrip.
Com-ADRCTRPCTRPUSEddieLeungDaumCommunicationsCorp.
DAUCF035720KSSeanOhE-CommerceChinaDangdangDANGDANGUSBinnieWongNaverCorporationXNHNF035420KSSeanOhNCSOFTNCSCF036570KSSeanOhNetease,IncNTESNTESUSEddieLeungPerfectWorldCoLtd-ADRPWRDPWRDUSEddieLeungQihooQIHUQIHUUSEddieLeungSinaCorpSINASINAUSEddieLeungSohu.
comIncSOHUSOHUUSEddieLeungSoufunSFUNSFUNUSEddieLeungTencentHoldingsTCTZF700HKEddieLeungVipshopHoldingsVIPSVIPSUSBinnieWongNEUTRALChangyou.
comLimitedCYOUCYOUUSEddieLeungNetdragonWebsoftNDWTF777HKEddieLeungRenrenInc.
RENNRENNUSEddieLeungYoukuTudouYOKUYOKUUSEddieLeungUNDERPERFORMTelevisionBroadcastsLtdTVBCF511HKAngelineOoiThe9LtdNCTYNCTYUSEddieLeungCRTencentHoldingsLtd.
15April20147APR-OnlinemediaCoverageClusterInvestmentratingCompanyBofAMerrillLynchtickerBloombergsymbolAnalystRVWJiayuan.
comDATEDATEUSEddieLeungTALEducation/XueersiXRSXRSUSEddieLeungXuedaEducationXUEXUEUSEddieLeungiQmethodSMMeasuresDefinitionsBusinessPerformanceNumeratorDenominatorReturnOnCapitalEmployedNOPAT=(EBIT+InterestIncome)*(1-TaxRate)+GoodwillAmortizationTotalAssets–CurrentLiabilities+STDebt+AccumulatedGoodwillAmortizationReturnOnEquityNetIncomeShareholders'EquityOperatingMarginOperatingProfitSalesEarningsGrowthExpected5-YearCAGRFromLatestActualN/AFreeCashFlowCashFlowFromOperations–TotalCapexN/AQualityofEarningsCashRealizationRatioCashFlowFromOperationsNetIncomeAssetReplacementRatioCapexDepreciationTaxRateTaxChargePre-TaxIncomeNetDebt-To-EquityRatioNetDebt=TotalDebt,LessCash&EquivalentsTotalEquityInterestCoverEBITInterestExpenseValuationToolkitPrice/EarningsRatioCurrentSharePriceDilutedEarningsPerShare(BasisAsSpecified)Price/BookValueCurrentSharePriceShareholders'Equity/CurrentBasicSharesDividendYieldAnnualisedDeclaredCashDividendCurrentSharePriceFreeCashFlowYieldCashFlowFromOperations–TotalCapexMarketCap.
=CurrentSharePrice*CurrentBasicSharesEnterpriseValue/SalesEV=CurrentSharePrice*CurrentShares+MinorityEquity+NetDebt+OtherLTLiabilitiesSalesEV/EBITDAEnterpriseValueBasicEBIT+Depreciation+AmortizationiQmethodSMisthesetofBofAMerrillLynchstandardmeasuresthatservetomaintainglobalconsistencyunderthreebroadheadings:BusinessPerformance,QualityofEarnings,andvalidations.
ThekeyfeaturesofiQmethodare:Aconsistentlystructured,detailed,andtransparentmethodology.
Guidelinestomaximizetheeffectivenessofthecomparativevaluationprocess,andtoidentifysomecommonpitfalls.
iQdatabaseisourreal-timeglobalresearchdatabasethatissourceddirectlyfromourequityanalysts'earningsmodelsandincludesforecastedaswellashistoricaldataforincomestatements,balancesheets,andcashflowstatementsforcompaniescoveredbyBofAMerrillLynch.
iQprofileSM,iQmethodSMareservicemarksofMerrillLynch&Co.
,Inc.
iQdatabaseisaregisteredservicemarkofMerrillLynch&Co.
,Inc.
CRTencentHoldingsLtd.
15April20148ImportantDisclosuresTCTZFPriceChart01002003004005006007001-Jan-121-Jan-131-Jan-14B:Buy,N:Neutral,U:Underperform,PO:PriceObjective,NA:Nolongervalid,NR:NoRatingTCTZF1-AprBLeungPO:HK$22011-MayPO:HK$23516-MayPO:HK$24210-AugPO:HK$2409-NovPO:HK$21814-MarPO:HK$23829-AprPO:HK$27315-AugPO:HK$2692-OctPO:HK$29214-NovPO:HK$30218-MarPO:HK$30020-MarPO:HK$29115-MayPO:HK$3163-JulPO:HK$33814-AugPO:HK$40216-SepPO:HK$46413-NovPO:HK$4751-DecPO:HK$49526-JanPO:HK$55417-FebPO:HK$63810-MarPO:HK$67519-MarPO:HK$687TheInvestmentOpinionSystemiscontainedattheendofthereportundertheheading"FundamentalEquityOpinionKey".
Darkgreyshadingindicatesthesecurityisrestrictedwiththeopinionsuspended.
Mediumgreyshadingindicatesthesecurityisunderreviewwiththeopinionwithdrawn.
Lightgreyshadingindicatesthesecurityisnotcovered.
ChartiscurrentasofMarch31,2014orsuchlaterdateasindicated.
InvestmentRatingDistribution:TechnologyGroup(asof31Mar2014)CoverageUniverseCountPercentInv.
BankingRelationships*CountPercentBuy12456.
88%Buy9475.
81%Neutral4721.
56%Neutral3472.
34%Sell4721.
56%Sell3472.
34%InvestmentRatingDistribution:GlobalGroup(asof31Mar2014)CoverageUniverseCountPercentInv.
BankingRelationships*CountPercentBuy170250.
59%Buy125473.
68%Neutral84425.
09%Neutral61372.
63%Sell81824.
32%Sell53064.
79%*CompaniesthatwereinvestmentbankingclientsofBofAMerrillLynchoroneofitsaffiliateswithinthepast12months.
Forpurposesofthisdistribution,astockratedUnderperformisincludedasaSell.
FUNDAMENTALEQUITYOPINIONKEY:OpinionsincludeaVolatilityRiskRating,anInvestmentRatingandanIncomeRating.
VOLATILITYRISKRATINGS,indicatorsofpotentialpricefluctuation,are:A-Low,B-MediumandC-High.
INVESTMENTRATINGSreflecttheanalyst'sassessmentofastock's:(i)absolutetotalreturnpotentialand(ii)attractivenessforinvestmentrelativetootherstockswithinitsCoverageCluster(definedbelow).
Therearethreeinvestmentratings:1-Buystocksareexpectedtohaveatotalreturnofatleast10%andarethemostattractivestocksinthecoveragecluster;2-NeutralstocksareexpectedtoremainflatorincreaseinvalueandarelessattractivethanBuyratedstocksand3-Underperformstocksaretheleastattractivestocksinacoveragecluster.
Analystsassigninvestmentratingsconsidering,amongotherthings,the0-12monthtotalreturnexpectationforastockandthefirm'sguidelinesforratingsdispersions(showninthetablebelow).
Thecurrentpriceobjectiveforastockshouldbereferencedtobetterunderstandthetotalreturnexpectationatanygiventime.
Thepriceobjectivereflectstheanalyst'sviewofthepotentialpriceappreciation(depreciation).
InvestmentratingTotalreturnexpectation(within12-monthperiodofdateofinitialrating)Ratingsdispersionguidelinesforcoveragecluster*Buy≥10%≤70%Neutral≥0%≤30%UnderperformN/A≥20%*RatingsdispersionsmayvaryfromtimetotimewhereBofAMerrillLynchResearchbelievesitbetterreflectstheinvestmentprospectsofstocksinaCoverageCluster.
INCOMERATINGS,indicatorsofpotentialcashdividends,are:7-same/higher(dividendconsideredtobesecure),8-same/lower(dividendnotconsideredtobesecure)and9-paysnocashdividend.
CoverageClusteriscomprisedofstockscoveredbyasingleanalystortwoormoreanalystssharingacommonindustry,sector,regionorotherclassification(s).
Astock'scoverageclusterisincludedinthemostrecentBofAMerrillLynchCommentreferencingthestock.
Pricechartsforthesecuritiesreferencedinthisresearchreportareavailableathttp://pricecharts.
ml.
com,orcall1-800-MERRILLtohavethemmailed.
Thecompanyisorwas,withinthelast12months,aninvestmentbankingclientofMLPF&Sand/oroneormoreofitsaffiliates:TencentHoldings.
IntheUS,retailsalesand/ordistributionofthisreportmaybemadeonlyinstateswherethesesecuritiesareexemptfromregistrationorhavebeenqualifiedforsale:TencentHoldings.
MLPF&Soranaffiliateexpectstoreceiveorintendstoseekcompensationforinvestmentbankingservicesfromthiscompanyoranaffiliateofthecompanywithinthenextthreemonths:TencentHoldings.
BofAMerrillLynchResearchpersonnel(includingtheanalyst(s)responsibleforthisreport)receivecompensationbasedupon,amongotherfactors,theoverallprofitabilityofBankofAmericaCorporation,includingprofitsderivedfrominvestmentbankingrevenues.
CRTencentHoldingsLtd.
15April20149OtherImportantDisclosuresOfficersofMLPF&Soroneormoreofitsaffiliates(otherthanresearchanalysts)mayhaveafinancialinterestinsecuritiesoftheissuer(s)orinrelatedinvestments.
Fromtimetotimeresearchanalystsconductsitevisitsofcoveredcompanies.
BofAMerrillLynchpoliciesprohibitresearchanalystsfromacceptingpaymentorreimbursementfortravelexpensesfromthecompanyforsuchvisits.
BofAMerrillLynchGlobalResearchpoliciesrelatingtoconflictsofinterestaredescribedathttp://www.
ml.
com/media/43347.
pdf.
"BofAMerrillLynch"includesMerrillLynch,Pierce,Fenner&SmithIncorporated("MLPF&S")anditsaffiliates.
InvestorsshouldcontacttheirBofAMerrillLynchrepresentativeorMerrillLynchGlobalWealthManagementfinancialadvisoriftheyhavequestionsconcerningthisreport.
"BofAMerrillLynch"and"MerrillLynch"areeachglobalbrandsforBofAMerrillLynchGlobalResearch.
InformationrelatingtoNon-USaffiliatesofBofAMerrillLynchandDistributionofAffiliateResearchReports:MLPF&Sdistributes,ormayinthefuturedistribute,researchreportsofthefollowingnon-USaffiliatesintheUS(shortname:legalname):MerrillLynch(France):MerrillLynchCapitalMarkets(France)SAS;MerrillLynch(Frankfurt):MerrillLynchInternationalBankLtd.
,FrankfurtBranch;MerrillLynch(SouthAfrica):MerrillLynchSouthAfrica(Pty)Ltd.
;MerrillLynch(Milan):MerrillLynchInternationalBankLimited;MLI(UK):MerrillLynchInternational;MerrillLynch(Australia):MerrillLynchEquities(Australia)Limited;MerrillLynch(HongKong):MerrillLynch(AsiaPacific)Limited;MerrillLynch(Singapore):MerrillLynch(Singapore)PteLtd.
;MerrillLynch(Canada):MerrillLynchCanadaInc;MerrillLynch(Mexico):MerrillLynchMexico,SAdeCV,CasadeBolsa;MerrillLynch(Argentina):MerrillLynchArgentinaSA;MerrillLynch(Japan):MerrillLynchJapanSecuritiesCo.
,Ltd.
;MerrillLynch(Seoul):MerrillLynchInternationalIncorporated(SeoulBranch);MerrillLynch(Taiwan):MerrillLynchSecurities(Taiwan)Ltd.
;DSPMerrillLynch(India):DSPMerrillLynchLimited;PTMerrillLynch(Indonesia):PTMerrillLynchIndonesia;MerrillLynch(Israel):MerrillLynchIsraelLimited;MerrillLynch(Russia):OOOMerrillLynchSecurities,Moscow;MerrillLynch(TurkeyI.
B.
):MerrillLynchYatirimBankA.
S.
;MerrillLynch(TurkeyBroker):MerrillLynchMenkulDeerlerA.
.
;MerrillLynch(Dubai):MerrillLynchInternational,DubaiBranch;MLPF&S(Zurichrep.
office):MLPF&SIncorporatedZurichrepresentativeoffice;MerrillLynch(Spain):MerrillLynchCapitalMarketsEspana,S.
A.
S.
V.
;MerrillLynch(Brazil):BankofAmericaMerrillLynchBancoMultiploS.
A.
;MerrillLynchKSACompany,MerrillLynchKingdomofSaudiArabiaCompany.
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,Ltd.
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