TENCENT(00700) 华创证券·2024-07-18 10:07Investment Rating - The report maintains a "Recommended" rating for Tencent Holdings, with a target price range of HKD 453.08 to HKD 503.42 [3][6][85]. Core Insights - The importance of shareholder returns has increased, with a focus on cash dividends and share buybacks, leading to a clearer financial improvement for Tencent [8][9]. - The expected shareholder return for 2024 is projected to be between 3.2% and 4.1% after tax, driven by increased cash dividends and share repurchases [9][24]. - The report anticipates that the growth rate of EPS will outpace that of net profit by 2.4 to 3.3 percentage points in 2024, due to significant share buybacks and high-margin new business contributions [9][34]. Summary by Sections 1. Quantifying Shareholder Returns - The dividend payout ratio has increased to approximately 18% over the past two years, with four special dividend distributions made [16][17]. - Share buybacks have significantly increased, with a record high of HKD 375 billion in Q2 2024, and a plan to double the buyback amount to over HKD 100 billion in 2024 [20][21]. - The dilution effect from equity incentives is estimated at about 0.6% annually [22]. 2. Sources of Cash Flow Stability - Tencent's competitive environment is relatively stable, with strong positions in gaming and payment sectors, leading to better cash flow than reported profits [40][41]. - The report notes a significant reduction in cash flow allocated to external investments since 2022, allowing for increased shareholder returns, which are expected to reach 62% to 78% of free cash flow in 2024 [40][54]. 3. Feasibility Analysis - The report highlights Tencent's strong market position and stable competitive landscape, which supports its cash flow and shareholder return potential [56][57]. - The company has a strong bargaining power and business selection ability, which enhances its profitability [62]. 4. Contributions from Joint Ventures - The profitability of core joint ventures is expected to improve, contributing positively to Tencent's financials [64]. - The report indicates that the pressure from major shareholder reductions has stabilized and can be offset by share buybacks [73]. 5. Valuation Discussion - The report suggests a shift in valuation metrics from revenue growth to EPS growth, with a target valuation of 18-20x PE for 2024 [85][88]. - The expected revenue for 2024 is projected at HKD 670.6 billion, with a year-on-year growth of 10% [90][91]. 6. Profit Forecast - The forecast for 2024-2026 includes revenues of HKD 670.6 billion, HKD 732.9 billion, and HKD 792.9 billion, with corresponding net profits of HKD 210.1 billion, HKD 234.9 billion, and HKD 259.8 billion [90][93].