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TAIWAN SEMICONDUCTOR MANUFACTURING COMPANY LIMITED

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Tencent vows fresh gaming curbs after 'spiritual opium' media slap knocks shares

08/03/2021 | 05:02am EDT
FILE PHOTO: Visitors are seen at the Tencent Games booth during the China Digital Entertainment Expo and Conference, also known as ChinaJoy, in Shanghai

SHANGHAI (Reuters) -China's Tencent Holdings Ltd said on Tuesday it would curb minors' access to its flagship video game, hours after its shares were battered by a state media article that described online games as "spiritual opium".

Economic Information Daily cited Tencent's "Honor of Kings" in an article in which it said minors were addicted to online games and called for more curbs on the industry. The outlet is affiliated with China's biggest state run news agency, Xinhua.

China's largest social media and video game firm saw its stock tumble more than 10% in early trade, wiping almost $60 billion from its market capitalisation. The stock was on track to fall the most in a decade before trimming losses after the article vanished from the outlet's website and WeChat account.

The broadside comes days after the securities regulator and state media sought to soothe investor fears over the pace and breadth of market reform that sparked a selloff in technology and private education. The CSI300 index last week fell more than 5% for its biggest monthly loss since October 2018.

The attack on the video game sector put investors back on edge.

"News once again caused market concerns about industry regulation," said Everbright Sun Hung Kai analyst Kenny Ng.

"Under this circumstance, it is expected that game stocks and even the overall technology stocks will still face continuous adjustment pressure," he said, adding focus will shift to whether firms change their policies for minors' access.

In the article, the newspaper singled out "Honor of Kings" as the most popular online game among students who, it said, played for up to eight hours a day.

"No industry, no sport, can be allowed to develop in a way that will destroy a generation," the newspaper said, likening online video games to "electronic drugs".

Tencent in a statement said it will introduce measures to reduce minors' access to and time spent on games. It also called for an industry ban on gaming for children under 12 years old.

The company did not address the article in its statement, nor did it respond to a Reuters request for comment.

The article also hit rivals' shares. NetEase Inc dropped more than 15% before paring losses to sit around 8% lower in late afternoon trade. Game developer XD Inc fell 8.2% and mobile gaming company GMGE Technology Group Ltd dropped 15.6%.

Outside of gaming, investors were also caught offguard by the State Administration For Market Regulation (SAMR) on Tuesday saying it would investigate auto chip distributors and punish any hoarding, collusion and price-gouging. The semiconductor stock index subsequently fell more than 6%.

CHILD WELLBEING

A separate opinion piece published by the China News Service on its official Twitter-like Weibo account hours after the Economic Information Daily article took a different tone, saying that blame could not be placed on any one party, including game developers, for child addiction to online video games.

"Schools, game developers, parents, and other parties need to work together," said the news outlet, which is also state-run.

Chinese regulators have since 2017 sought to limit the amount of time minors spend playing video games and companies including Tencent already have anti-addiction systems that they say cap young users' game time.

But authorities have in recent months placed fresh focus on protecting child wellbeing, and said they want to further strengthen rules around online gaming and education. Last month, they banned for-profit tutoring in core school subjects, attacking China's $120 billion private tutoring sector.

That added to other regulatory action in the technology industry, including a ban on Tencent from exclusive music copyright agreements and a fine for unfair market practices.

At one point on Tuesday, Tencent was briefly de-throned as Asia's most-valuable firm by market capitalisation by chipmaker Taiwan Semiconductor Manufacturing Co Ltd.

"It showed how investors are jumpy these days. They don't believe anything is off limit and will react, sometime over-react, to anything on state media that fits the tech crackdown narrative," said Ether Yin, partner at Beijing-based consultancy Trivium.

"Government will not and can not get rid of the gaming industry... Restrictions will stay but not much room to go tighter," he said.

(Reporting by Samuel Shen and Brenda Goh; Additional reporting by Yingzhi Yang in Beijing, Tom Westbrook in Singapore, Andrew Galbraith and Josh Horwitz in Shanghai; Editing by Vidya Ranganathan, Christopher Cushing and Nick Macfie)

By Brenda Goh and Samuel Shen


ę Reuters 2021
Stocks mentioned in the article
ChangeLast1st jan.
NETEASE, INC. 2.77% 105.04 Delayed Quote.6.72%
TENCENT HOLDINGS LIMITED -0.84% 475 End-of-day quote.-15.78%
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Financials
Sales 2021 1 574 B 56 428 M 56 428 M
Net income 2021 581 B 20 841 M 20 841 M
Net cash 2021 270 B 9 694 M 9 694 M
P/E ratio 2021 26,3x
Yield 2021 1,86%
Capitalization 15 299 B 548 B 548 B
EV / Sales 2021 9,55x
EV / Sales 2022 8,25x
Nbr of Employees 48 752
Free-Float 93,6%
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Mean consensus BUY
Number of Analysts 31
Last Close Price 590,00 TWD
Average target price 740,80 TWD
Spread / Average Target 25,6%
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Managers and Directors
Che Chia Wei Vice Chairman & Chief Executive Officer
Wendell Huang Chief Financial Officer & Vice President
Te Yin Liu Chairman
Yung Ching Hou Vice President-Research & Development
J. K. Lin SVP-Information Technology & Materials Management
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