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Tencent Rises as Online Ads Lift Profit: Hong Kong Mover

Aug. 16 (Bloomberg) -- Tencent Holdings Ltd. rose the most in more than eight months in Hong Kong trading after China’s biggest Internet company posted a 32 percent gain in profit on higher online advertising and games revenue.

Tencent rose 6.4 percent to close at HK$244.60, the most since Dec. 1. The stock has added 57 percent this year making it the second-biggest gainer on the benchmark Hang Seng Index.

The Internet company added social-networking users to sites including Qzone and Pengyou, helping boost Web advertising sales even as economic growth in China slowed. Chief Executive Officer Pony Ma is increasing spending on e-commerce operations to challenge local industry leader Alibaba Group Holding Ltd. and pare reliance on online games.

“The company has outperformed the rest of the advertising market, and is selling more ads on its online video and social networking sites,” said Dundas Deng, who rates Tencent buy at Guotai Junan Securities in Shenzhen. “The company did well in online games.”

Second-quarter net income climbed to 3.1 billion yuan ($487 million) from 2.35 billion yuan a year earlier, Tencent said in a statement yesterday. That compares with the 3.08 billion-yuan average of nine analysts’ estimates compiled by Bloomberg. Sales rose 56 percent to 10.5 billion yuan.

Social Networks

“We achieved strong revenue growth on our social networks during the quarter,” Tencent said.

Online games sales rose 53 percent to 5.57 billion yuan in the second-quarter, Tencent said. Internet advertising revenue increased 72 percent to 880 million yuan, the Shenzhen-based company said.

Tencent plans to accelerate the expansion of its online games business overseas, which at present account for a “small” proportion of game revenue, President Martin Lau said.

“It’s an area we will devote more resources to,” Lau said in a conference call with analysts yesterday, without providing details. Overseas game revenue has increase “quite a bit” in the past few quarters, he said.

NetEase Inc., China’s second-biggest online games company, posted a 13 percent increase in second-quarter profit to 875.3 million yuan, as sales rose 11 percent to 2 billion yuan, it said in a statement yesterday.

To contact the reporter on this story: Mark Lee in Hong Kong at wlee37@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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