2024-08-15 09:39Investment Rating - The report assigns a "Buy" rating to the company with a target price of 488.5 HKD, representing a potential upside of 30.7% from the recent closing price of 373.8 HKD [10][28]. Core Insights - The company's Q2 2024 revenue grew by 8% year-on-year to 161.12 billion RMB, with a significant increase in gross profit by 21% to 85.9 billion RMB, and operating profit surged by 40% to 50.732 billion RMB [7][27]. - The performance of the gaming and advertising segments exceeded expectations, contributing to a net profit increase of 79% year-on-year to 48.366 billion RMB [7][28]. - The report highlights the robust growth in the user base of WeChat and QQ, with WeChat's monthly active accounts increasing by 3.3% to 1.37 billion [7][13]. Financial Performance Summary - Revenue by segment: Value-added services revenue increased by 6% to 78.82 billion RMB, while online advertising revenue rose by 19% to 29.87 billion RMB, driven by video and long-form content [27][34]. - The financial technology and enterprise services segment saw a 4% increase in revenue to 50.44 billion RMB, indicating a slowdown in growth [34][37]. - Gross margin improved across various segments, with value-added services achieving a gross margin of 57%, up from 54% year-on-year [19][28]. Business Segment Analysis - The gaming segment showed resilience with a 9% year-on-year revenue growth in both domestic and international markets, supported by successful game launches [8][15]. - The advertising business outperformed expectations, with a 36% increase in gross profit, reflecting strong demand despite some budget cuts from other internet service companies [18][37]. - The report notes a decline in effective tax rates and significant contributions from joint ventures, which helped drive net profit beyond market expectations [21][22]. User Engagement and Ecosystem Growth - The report emphasizes the growth in user engagement within the WeChat ecosystem, with significant increases in user time spent on video accounts and mini-programs [28][34]. - The success of new and existing games, along with the expansion of the video account feature, is expected to enhance the company's commercial value and service capabilities [28][34].