Investment Rating - The report maintains a "Buy" rating for Tencent with a target price of HKD 480.0, representing a potential upside of 20.9% from the current price of HKD 397.00 [3][7][12]. Core Insights - Tencent is expected to achieve stable revenue and profit growth, supported by a recovery in its gaming business and robust advertising performance. For Q2 2024, revenue is projected to grow by 8% year-on-year to RMB 160.9 billion, with non-IFRS net income expected to rise by 33% to RMB 49.2 billion [3][4][5]. - The strong performance of DnF Mobile is anticipated to drive gaming revenue growth, with a forecasted 7% increase in gaming revenue for Q2 2024, reaching RMB 47.7 billion. The game has ranked among the top two in China's iOS revenue charts since its launch [4][5]. - Advertising revenue is expected to grow by 18% year-on-year to RMB 29.4 billion in Q2 2024, primarily due to strong performance in WeChat advertising [4][5]. Financial Projections - For FY24E, total revenue is projected at RMB 658.3 billion, with a gross profit margin of 53.1%. Adjusted net profit is expected to reach RMB 198.8 billion, reflecting a year-on-year growth of 26.1% [6][10]. - The report outlines a steady increase in gross profit margin, expected to rise to 53.4% in Q2 2024, driven by higher-margin revenue streams [5][10]. Valuation Breakdown - The target price of HKD 480.0 is derived from a sum-of-the-parts (SOTP) valuation, which includes: 1. Online gaming business valued at HKD 186.4 based on a 19x PE for FY24E. 2. SNS business valued at HKD 32.5, including Tencent's stakes in subsidiaries. 3. Advertising business valued at HKD 85.8 based on an 18x PE. 4. Fintech business valued at HKD 79.7 based on a 4.0x PS. 5. Cloud business valued at HKD 20.8 based on a 4.0x PS [12][14][15].

15 Jul 2024 CMB International Global Markets | Equity Research | Company Update Earnings growth stability continues | --- | --- | --- | --- | --- | --- | |------------------------------|-----------|-----------|-----------|-----------|-----------| | (YE 31 Dec) | FY22A | FY23A | FY24E | FY25E | FY26E | | Revenue (RMB mn) | 554,552 | 609,015 | 658,280 | 712,260 | 764,432 | | Gross margin (%) | 43.1 | 48.1 | 53.1 | 53.8 | 54.3 | | Adjusted net profit (RMB mn) | 115,649.0 | 157,688.0 | 198,794.6 | 218,584.6 | 2 ...

Investment Rating - The report maintains a positive outlook on Tencent Holdings with adjusted revenue forecasts for 2024-2026 reflecting slight decreases of -0.3%, -0.4%, and -0.4% respectively, primarily due to a slowdown in payment revenue growth within the fintech segment [4]. Core Insights - The adjusted net profit forecasts for 2024-2026 have been increased by 5.6%, 7.4%, and 8.1% to reach RMB 218.3 billion, RMB 249 billion, and RMB 279.6 billion respectively, driven by improvements in gross margins across all business lines [4]. - The report highlights an increase in advertising gross margins due to a higher proportion of revenue from video accounts and efficiency improvements brought by AI, alongside enhanced gross margins in fintech driven by increased contributions from wealth management and consumer loans [4]. Financial Forecast Summary - Revenue projections for 2023 are set at RMB 609 billion, with a year-over-year growth of 10%. For 2024, the revenue is expected to reach RMB 665.6 billion, with a growth rate of 9% [1]. - Gross profit for 2023 is forecasted at RMB 3,560 million, reflecting a 1.3% increase from previous estimates, while the gross profit margin is expected to improve to 53.5% [5][12]. - The adjusted net profit for 2023 is projected at RMB 2,183 million, indicating a significant increase of 10.4% compared to prior estimates [12]. - The report anticipates a steady increase in operating profit margins, with adjusted operating profit for 2023 expected to be RMB 1,919 million, representing a year-over-year growth of 34% [1][5].

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | |--------------------------|----------------|-----------------|-----------------|-----------------|----------------|----------------|----------------|----------------|----------------|-----------------|-----------------|-----------------| | 总收入 | 2023 \n609,015 | 2024E \n673,025 | 2025E \n754,773 | 2026E \n830,644 | 1Q23 \n149,986 | 2Q23 \n149,208 | 3Q23 \n154,625 | 4Q23 \n155,196 | 1Q24 \n159,501 | 2Q24E \n163.034 | 3Q24E \n173 ...

Investment Rating - The investment rating for Tencent Holdings is "Outperform the Market" (maintained) [11][25]. Core Views - The report anticipates a 7% year-on-year revenue growth for Q2 2024, driven by stable growth in online advertising and a recovery in gaming business, while financial technology is impacted by macroeconomic conditions [6][29]. - The performance of the newly launched mobile game "DNF" is expected to significantly contribute to revenue in the upcoming quarters, with an estimated first-month revenue of 5 billion yuan [3][15]. - The video account feature is projected to drive a 20% increase in advertising revenue, enhancing monetization efficiency [28][48]. Summary by Sections Gaming Revenue - Domestic gaming revenue is expected to grow by 5% year-on-year, with the "DNF" mobile game performing exceptionally well since its launch on May 21 [3][13]. - The report estimates that Tencent's online gaming revenue for Q2 2024 will reach 476 billion yuan, reflecting a 7% year-on-year growth [18][29]. Financial Technology and Enterprise Services - Financial technology and enterprise services revenue is projected to be 501 billion yuan, a 3% year-on-year increase, with growth slowing due to macroeconomic factors [4][14]. - The report highlights that the main revenue source in this segment comes from payment services, which are closely tied to offline consumption [4]. Advertising Revenue - Advertising revenue is expected to reach 300 billion yuan in Q2 2024, marking a 20% year-on-year increase, primarily driven by the growth of the video account feature [35][48]. - The report notes that the video account's rapid user growth and the introduction of new advertising products will enhance monetization [28][51]. Profitability Forecast - The report forecasts a Non-IFRS net profit of 501 billion yuan for Q2 2024, representing a 33% year-on-year increase, with a net profit margin of 31% [16][28]. - The profit growth is attributed to high-quality growth in the business mix, leading to sustained improvements in gross margins [16][28].

Investment Rating - The report does not explicitly state an investment rating for the company [3]. Core Insights - Tencent's new game "Apex Warriors 2" was launched on July 6, 2024, allowing Android users immediate download, while iOS users are still awaiting access [3]. - The game features a 5V5 hero shooting format and offers special benefits for returning players, allowing them to redeem previous in-game purchases [3]. - Tencent showcased its advancements in AI large models at the World Artificial Intelligence Conference, emphasizing its leadership in the domestic AI model landscape [3]. - The company has initiated a significant share buyback program, repurchasing 10.63 million shares for a total of 4 billion HKD from July 2 to July 5, 2024 [3]. Company Overview - Tencent's market capitalization stands at 35,380 billion HKD, with a total share capital of 9.355 billion [3]. - The stock price is currently at 378 HKD, with a 52-week high of 400.2 HKD and a low of 256.8 HKD [3]. - The book value per share is reported at 89.7 HKD [3]. Industry Developments - Tencent's large model technology is becoming a core driver for various industries, with significant advancements in computational power and efficiency [3]. - The report highlights ten trends in AI development, indicating that large models are evolving to support human intelligence and enhance interaction capabilities [3].

Investment Rating - The report provides a positive outlook on Tencent Holdings (700.HK) with a focus on its advancements in AI and network technology [9]. Core Insights - Tencent has upgraded its self-developed high-performance computing network, Starry Sky Network 2.0, which has improved communication efficiency by 60% and enhanced large model training efficiency by 20% [9]. - The company is set to launch 35 new mobile games in July, with 21 already scheduled, indicating a strong product pipeline [9]. - Tencent has initiated the "Exploration Plan 2024," aimed at leveraging technology to support cultural heritage, showcasing its commitment to social value investment [9]. Summary by Sections Company Overview - Tencent's market capitalization stands at 34,537 billion HKD, with a current share price of 369 HKD [9]. - The total share capital is 9.355 billion shares, with a book value per share of 89.7 HKD [9]. Product Development - The upgraded Starry Sky Network 2.0 supports over 10,000 cards and is designed to enhance AI model training efficiency [9]. - Tencent has three new game products scheduled for release in July, including "Need for Speed: Unbound" and "World Awakening" [9]. Strategic Initiatives - The "Exploration Plan 2024" focuses on six cultural heritage themes and aims to gather digital solutions to promote cultural transmission [9]. - Tencent Classroom will cease operations on October 1, 2024, as part of a strategic adjustment in response to industry trends [9].

Investment Rating - The report maintains a "Buy" rating for the company, indicating a strong expectation of performance exceeding the market by over 20% [15][25]. Core Insights - The first month revenue of the "DNF Mobile Game" exceeded expectations, with projections suggesting an annual revenue of approximately 25 billion RMB [5]. - The report anticipates an increase in profit margins due to the removal of certain Android applications, allowing for lower user acquisition costs through alternative channels [4]. - The target price has been adjusted from 471 HKD to 473 HKD, reflecting a 26% upside potential based on revised profit forecasts [15]. Financial Projections - Revenue is projected to grow from 554.55 billion RMB in 2022 to 787.65 billion RMB by 2026, with a compound annual growth rate (CAGR) of approximately 9.4% [24]. - Non-IFRS net profit is expected to rise from 115.65 billion RMB in 2022 to 258.91 billion RMB in 2026, indicating a significant growth trajectory [24]. - The report highlights a projected increase in earnings per share (EPS) from 12.1 RMB in 2022 to 27.7 RMB in 2026 [24]. Market Position and Strategy - The company is focusing on enhancing its video platform and AI capabilities, with expectations for video advertising and e-commerce to drive future revenue growth [6]. - The strategic adjustments in the WeChat video platform are expected to improve monetization opportunities [6]. Competitive Landscape - The report notes that the gaming sector, particularly with titles like "Peacekeeper Elite" and "Honor of Kings," continues to show strong performance, validating the long-term operational strategies [5]. - The company is also exploring new game releases in the latter half of the year, which could further bolster its market position [5].

Investment Rating - The report does not explicitly state an investment rating for Tencent Holdings (700.HK) [2]. Core Insights - Tencent's mobile game "Dungeon & Fighter: Origin" has been removed from several Android app stores due to contract expiration, impacting its distribution [2]. - The game has performed exceptionally well in the iOS market, ranking first in downloads since its pre-download launch on May 20, with over 4 million downloads in May alone [2]. - Tencent's mobile gaming revenue increased by 12% in May, driven by the success of "Dungeon & Fighter: Origin" and other titles [2]. - Tencent's esports division is expanding its international cooperation network, launching a global esports exchange program starting in August in regions like Saudi Arabia, France, and Japan [2]. - In June, 104 domestic online games received approval, including Tencent's "Rock Kingdom: World," which is currently in development [2]. Summary by Sections Company Overview - Tencent Holdings has a market capitalization of HKD 35,764 billion and a total share capital of 9.362 billion shares [2]. - The stock price is currently at HKD 382, with a 52-week high of HKD 400.2 and a low of HKD 256.8 [2]. Gaming Performance - "Dungeon & Fighter: Origin" has surpassed revenue records, achieving over USD 100 million in just 10 days post-launch, ranking 8th in revenue [2]. - The game has outperformed "Honor of Kings" and "Peacekeeper Elite" in terms of revenue growth [2]. Esports Development - Tencent esports is set to host a series of international exchange events aimed at fostering collaboration within the global esports community [2]. Regulatory Updates - The National Press and Publication Administration approved 104 games in June, including Tencent's upcoming title [2].

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings with a target price of HKD 507.55 per share [56][76] Core Views - Tencent's strategy focuses on high-quality growth, with key investments in overseas gaming, short video, and enterprise services since 2021 [89] - The company's core businesses remain stable, while new growth drivers such as video accounts and mini-games are emerging, contributing to mid-term performance growth [89] - Long-term growth is expected from generative AI investments, which are exploring new user scenarios and technological advancements [89] Financial Projections - Revenue is projected to reach RMB 658.9 billion in 2024 and RMB 726.1 billion in 2025, representing year-on-year growth of 8% and 10%, respectively [4][76] - Adjusted net profit attributable to shareholders is expected to grow by 29% in 2024 and 14% in 2025, reaching RMB 203 billion and RMB 231.2 billion, respectively [32][76] - Gross margin is forecasted to improve to 52.8% in 2024 and 53.2% in 2025, driven by higher-quality business streams [32] Business Segments Gaming - Domestic gaming revenue reached RMB 126.7 billion in 2023, up 2% YoY, while overseas gaming revenue grew 14% YoY to RMB 53.2 billion [74] - Tencent's overseas gaming investments have been a key focus since 2021, with contributions to overall gaming revenue steadily increasing [74] - The company plans to launch new games, such as "Dungeon & Fighter: Origin," which is expected to drive growth in 2024 [88] Financial Technology - WeChat Pay's revenue growth is closely tied to the overall mobile payment market, which saw transaction volume increase by 16.81% YoY to 1.851 trillion transactions in 2023 [2] - Non-payment businesses, such as credit and wealth management services, have significant growth potential, with WeBank playing a key role in expanding these services [8][10][119] Advertising - Advertising revenue is expected to grow by 19% in 2024 and 16% in 2025, driven by inventory expansion on WeChat, video accounts, and mini-games [40] - Video accounts' total viewing time grew by 100% YoY in 2023, with further growth of 80% YoY in Q1 2024, providing strong monetization opportunities [17] Enterprise Services - Tencent's enterprise services are benefiting from the growth of video accounts and mini-programs, with live-streaming e-commerce and technical service fees contributing to revenue [38] - The company is also investing in generative AI, which is expected to enhance SaaS tool efficiency and create new revenue streams in the medium to long term [152] Valuation - Using the SOTP valuation method, Tencent's core businesses are valued at HKD 4.26 trillion, with gaming and advertising contributing HKD 1.56 trillion and HKD 1.23 trillion, respectively [83] - The company's secondary market investments are valued at HKD 494.7 billion, contributing HKD 52.84 per share to the total valuation [135] Strategic Investments - Tencent has made significant investments in overseas gaming companies, including Riot Games, Supercell, and Epic Games, which have contributed to its global gaming presence [108][110] - The company is also investing in generative AI, with its Hunyuan large model and Tencent Yuanbao AI assistant launched in 2023 and 2024, respectively [132]