TENCENT(00700) 华创证券·2024-07-18 09:01Investment Rating - The report maintains a "Buy" rating for Tencent Holdings (0700.HK) with a target price range of 453.08 to 503.42 HKD, while the current price is 371.80 HKD [1]. Core Insights - The report emphasizes the increasing importance of shareholder returns, highlighting Tencent's rising cash dividend ratio and record share buyback amounts over the past two years. It aims to explore the financial improvements resulting from this focus on shareholder returns [1][29]. - The anticipated shareholder return for 2024 is projected to be between 3.2% and 4.1% after tax, based on cash dividends and share buybacks [6][51]. Summary by Sections Shareholder Returns - Tencent's shareholder returns are divided into cash dividends and share buybacks, with the cash dividend rate significantly increasing from 10.7% in 2021 to 18.5% in 2023. The company plans to double its buyback amount to over 100 billion HKD in 2024 [1][29]. - The report predicts that the growth rate of earnings per share (EPS) will outpace net profit growth due to high-margin new businesses and operational leverage [1][43]. Financial Performance Forecast - The company is expected to achieve revenues of 670.6 billion HKD, 732.9 billion HKD, and 792.9 billion HKD for the years 2024, 2025, and 2026, respectively, with year-over-year growth rates of 10%, 9%, and 8% [2]. - The projected net profit for 2024 is 210.1 billion HKD, reflecting a year-over-year increase of 49.1% [2]. Cash Flow and Investment Strategy - The report discusses the stability of Tencent's cash flow, which is expected to remain better than reported profits due to a favorable competitive environment and reduced external investments. The cash flow allocated to shareholder returns is anticipated to increase significantly [29][94]. - The report notes a structural change in the use of free cash flow, with a significant decrease in external investments since 2022, allowing for greater shareholder return expenditures [29][94]. Valuation Discussion - The report reviews Tencent's historical valuation cycles and suggests that the current market conditions may lead to a new valuation paradigm, with a focus on EPS growth as a key metric [1][85]. - The anticipated buyback amount for 2024 is estimated at 1,000 billion HKD under a neutral scenario and 1,323 billion HKD under an optimistic scenario, which is expected to further enhance EPS growth [62][89].