TENCENT(HK:00700) Zhao Yin Guo Ji·2024-11-14 01:49Investment Rating - The report maintains a BUY rating for Tencent with a target price of HK$525.0, representing a 30% upside from the current price of HK$403.80 [3][7]. Core Insights - Tencent's total revenue for 3Q24 increased by 8% YoY to RMB167.2 billion, aligning with consensus estimates. Non-IFRS operating profit grew by 19% YoY to RMB61.3 billion, also in line with expectations. The company anticipates continued earnings growth in 4Q24, driven by accelerating game revenue and resilient marketing performance [1][2]. - Game revenue growth accelerated in the second half of 2024, with a 13% YoY increase to RMB51.8 billion in 3Q24. Domestic game revenue rose by 14% YoY, primarily due to strong performance from DnF Mobile, while international game revenue grew by 9% YoY [1][2]. - Marketing services revenue showed solid momentum, increasing by 17% YoY to RMB30.0 billion in 3Q24, driven by strong demand for Video Accounts, Mini Programs, and Weixin Search [1][2]. - The Fintech and Business Services (FBS) segment experienced a 2% YoY revenue growth to RMB53.1 billion in 3Q24, reflecting a deceleration due to soft consumption sentiment [1][2]. Financial Summary - For FY24E, Tencent's revenue is projected to reach RMB655.999 billion, with an adjusted net profit of RMB224.394 billion and an adjusted EPS of RMB23.17 [2][4][17]. - Gross margin is expected to improve from 48.1% in FY23A to 53.2% in FY24E, with operating margin increasing from 32.0% to 32.8% [2][4][17]. - The adjusted net profit forecast for FY25E is RMB241.929 billion, with an adjusted EPS of RMB24.98 [2][4][17]. Valuation Breakdown - The SOTP-derived target price of HK$525.0 includes valuations for various segments: HK$202.9 for online games, HK$30.4 for SNS, HK$102.6 for marketing services, HK$84.5 for fintech, HK$22.6 for cloud, and HK$68.8 for strategic investments [7][8][9][10][11]. - The valuation reflects Tencent's strong market position and growth potential across its diverse business segments [7][8][9][10][11]. Peer Comparison - Tencent's valuation metrics are competitive within the online games and advertising sectors, with an average PE of 18x for online games and 19x for marketing services compared to its peers [13][14]. - The report highlights Tencent's leadership in the digital payment market and its potential for growth in fintech, supported by a premium valuation compared to industry averages [10][14].