Analysts are optimistic about Chinese tech and gaming giant Tencent despite a Huawei-like sanction from the US government imposed last week, with one saying that it may instead end up hurting Apple’s Iphone sales in China.

Why it matters: The lack of detail in the Trump administration’s sudden ban on Thursday of transactions involving Tencent’s mega messaging app Wechat has sowed widespread confusion. But analysts are optimistic about the company’s future performance even considering a worst-case scenario.

  • Tencent said it was still “reviewing the potential consequences” of the executive order on Friday. A company representative declined to provide further comment on Monday.

Details: Shenzhen-based broker Guosen Securities on Monday maintained a buy rating on the Tencent stock because it said that the Trump administration’s ban on Wechat will have little impact on revenues from Tencent’s social media business.

  • Tencent’s non-gaming revenue in the US only accounted for 0.4% of the company’s total revenue in 2019 and Wechat’s full exit from the US market will have little impact on the company’s revenue and social media ecosystem, said Wang Xueheng, analyst at Guosen Securities.
  • The executive order means American companies will be banned from advertising on Wechat and individuals in the country will not be allowed to make payments via Wechat, the analyst wrote in a note (in Chinese) on Monday.
  • There is little possibility that Apple will be ordered to remove Wechat from the China App Store, he added.
  • Iphone analyst Ming-Chi Kuo of Hong Kong-based TFI Securities said Sunday that the popular Apple Iphone will be hit the hardest as a result of the US ban on Wechat.
  • Wechat’s popularity in China is so established that Kuo expects that Apple will see its Iphone shipments decline by 25% to 30% year on year if it is required to remove Wechat from the global App Store. The decline, he added, will primarily be driven by a potential dropoff Iphone sales in China.

Context: The Trump administration said Thursday it would bar individuals and companies within US jurisdictions from making transactions with Tencent and Bytedance, the owner of Tiktok, in 45 days.

  • The executive orders come a day after the US Secretary of State Mike Pompeo escalated the tech war with a new initiative. He promised to purge US networks from Chinese technology under the “Clean Network” program.

Wei Sheng

Writing about semiconductors and telecommunications.