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Nikkei Markets

Tencent boosted by China's approval for imported video games

Revenue from "Game of Thrones" title seen as limited

Regulatory approval for Tencent to sell "Game of Thrones: Winter is Coming" is seen as a positive for the company and China's overall video game market.   © Reuters

HONG KONG (Nikkei Markets) -- Shares of Tencent Holdings headed for an eight-month high after the company received the go-ahead from Chinese regulators to sell a video game based on the hit TV show "Game of Thrones," the first approval of an imported game title in more than a year.

"Game of Thrones: Winter is Coming," based on the HBO TV series, is developed by Chinese game maker Yoozoo. Tencent, which owns the popular Chinese messaging app WeChat, released a test version of the game in January, describing it as a simulation that lets players aged 14 and above take on identities and control various characters from the show.

Analysts were cautious about the extent to which Tencent would benefit from the game, as the company iss only the sales agent and will have to split revenue with the developer.

Jason Chan, senior portfolio manager at South China Asset Holdings, said the title never made it to the Top 10 lists on Chinese game review websites.

However, many cheered the broader implications of Beijing's move.

In all, China's State Administration of Press, Publication, Radio, Film and Television approved 30 video games on Tuesday, saying it was the first list of imported online games released by it since February 2018. Besides "Game of Thrones," the lineup included "The Room Three" by NetEase, the second-largest online gaming company after Tencent.

Although Beijing is likely to maintain a quota for imported games, the approval is nonetheless positive for both domestic publishers and overseas game developers, brokerage Jefferies said.

"Previously, people feared that licenses would be granted only to functional or educational games," said Chan of South China Asset. Now that Beijing is approving imported games, "it signals more core games entering China, a positive for Tencent," he added.

Shenzhen-based Tencent, the world's largest gaming company by revenue, has grappled with a slowdown after Chinese regulators stopped approving new games last year due to concerns about violent content, addiction and deteriorating eyesight, especially among the young. Tencent's games are available in other countries. Still, a large share of its revenue comes from China, the world's largest gaming market.

The weakness in its gaming business and a slowdown in the domestic economy pushed Tencent's quarterly profit down 32% in the October-December period, its steepest quarterly drop in 13 years. The stock lost nearly a quarter of its value last year.

In a bid to reduce its dependence on the online games segment, Tencent has diversified into other businesses such as payment services, cloud computing and artificial intelligence. At the end of last year, gaming revenue contributed 29% to its total, down from 37% a year ago.

On Tuesday, the company increased its shareholding in Weimob, a cloud-based commerce and marketing solutions company, to 7.7% from 2.9%. Its other investments include food-delivery service Meituan-Dianping and social e-commerce platform Pinduoduo.

Despite its muted quarterly results, Beijing's decision in December to resume approvals for games has helped lift Tencent's stock by more than 20% so far this year. It has outperformed the benchmark Hang Seng Index, which is up 16% in the same time.

The stock gained 3.3% Wednesday to close at HK$378 ($48.16), the highest level since late July.

"The share price movement means the market thinks its revenue growth will resume the pace ... seen in the past. This is a bit of an overreaction," said Tony Cheung, an analyst at CASH Financial Services.

Since January, Tencent has received approvals for eight games. But it is yet to get permission to sell its PlayerUnknown's Battlegrounds, or PUBG, which has proved hugely popular overseas and is expected to bring in major revenue for the company.

"The key to Tencent's future revenue lies in whether its popular, self-developed PUBG game can get a license. But it is hard, as it has more violent elements," Chan said. If PUBG is approved, it will be a big positive because it means that every type of game can get a license, Chan added.

Cheung warned of a weak first quarter for Tencent as a refresh of some games, such as "Honor of Kings," failed to gain additional traction, with players moving on to other titles. He also said advertising revenue could weaken amid the economic slowdown.

--Benny Kung and Dhanya Ann Thoppil

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