Zhao Yin Guo Ji·2024-07-15 03:22Investment 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].