Honour of Kings slam sees Tencent, Naspers shares fall

Hong Kong - Tencent and Naspers [JSE:NPN] shares fell by about 4% on Tuesday, after a Chinese newspaper criticised the internet giant's most profitable smartphone title - Honour of Kings - in an editorial.

South African firm Naspers, which has a 34% stake in Chinese-based Tencent, fell 3.91% at 11:08 South African time, to R2 499.96.

Tencent’s 4.1% slide pared its gain this year to 42%, after the People’s Daily blasted Honour of Kings in an editorial, citing it as an example of how addictive games spread “negative energy” and have even led to deaths.

The Hang Seng Index dropped as much as 2.1% before paring declines to 1.5% at 15:29 local time. Tencent, Galaxy Entertainment and Geely Automobile were the biggest losers on the gauge, sinking more than 3.7%.

READ: Naspers drags JSE down as tech sell-off weighs

Tencent accounts for more than a quarter of the Hang Seng Index’s 15% advance this year, as investors piled into China’s largest internet company. However, the benchmark equity gauge has lost momentum in the past month as it struggled to sustain gains above the 26 000 level.

"Tencent is a leading stock, which is big and has been very profitable for all investors," said  Ben Bei, director of Hong Kong and China strategy at CIMB Securities. "People need to think about other positive news to lift the market higher. Over the past one to two weeks the market has started to consolidate. Then it cannot break upward, so some people will take profits.”

Analysts attributed the deepening of Tuesday’s slump to selling of index futures after the measure fell below 25 500.

"Many investors were betting 25 500 was the supporting level for the Hang Seng Index and have bought lots of futures on it. As the index fell below that level this morning, some people got panicked and chose to sell their holdings," said Kenny Wen, a strategist at Sun Hung Kai Financial in Hong Kong.

Scrutiny of mobile games in China

China is stepping up its scrutiny of online and mobile games, as Tencent’s top-grossing Honour of Kings was blasted for harming children in the pursuit of profit.

The People’s Daily's harshly worded opinion piece came after China’s biggest messaging and games company declared curbs on playing time for the minors among the title’s estimated 100 million-plus monthly active users.

Video gaming remains at the core of Tencent, which is known for creating the all-purpose WeChat messaging service that’s become a facet of daily Chinese life. 

The self-developed Honour of Kings has grown into a money-spinner, a consistent chart-topper on Apple and Google app charts that’s expected to account for more than half of Tencent’s smartphone gaming revenue this year. 

“Whether they entertain the masses or hurt lives, when it comes to earning money versus the potential for harm, we have to be even more wary,” the newspaper, considered the mouthpiece of the ruling Communist Party, wrote.

READ: Naspers reaches new all-time high on JSE

Tencent, with its one billion plus active users, has become one of China’s largest corporations with dominant positions in social media and entertainment, areas that draw central government scrutiny. Government media and sociologists have also been critical of games since the era of internet cafes, stoked by reports of deaths after marathon gaming sessions.

Echoing their arguments, the People’s Daily said game addiction warps traditional social values. The newspaper also carried a commentary on curbing game addiction from Legal Evening News, which said Tencent hasn’t done enough.

Honour of Kings is a hack-and-slash game in the same vein as League of Legends, also from Tencent. The company cited it as one of the key titles that helped boost mobile gaming revenue 57% the first quarter, and Thomas Chong, an analyst at BOC International, has estimated that Honour of Kings will contribute more than 50% of Tencent’s smartphone game revenue this year.

The game’s universal popularity means the latest government push in China shouldn’t have a major impact on Tencent’s revenue in the longer run, said Marie Sun, an analyst with Morningstar Investment Service.

READ: Tencent rainmaker takes biggest gamble

“The demand is there and people will continue to play Tencent’s video games, so I don’t think the impact will be significant,” she said. “Honour of Kings has a diversified player base, not only primary or middle school students. There are a lot of older players who will continue playing. And even players who are of a younger age will figure out ways to keep playing the games."

Tencent did not respond to emailed questions but, in an interview posted on its official WeChat account, Honour of Kings producer Li Min said it is working on a system to protect juveniles from addiction.

Children aged 12 and below will be limited to playing an hour a day and banned from the game after 21:00, while those aged 13 to 18 will be limited to playing the game for two hours daily.

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