TENCENT(00700) 民生证券·2024-11-14 15:35Investment Rating - The report maintains a "Recommend" rating for Tencent Holdings (0700 HK) [6] Core Views - Tencent's Q3 2024 revenue reached RMB 1672 billion, up 8% YoY, with gross profit of RMB 888 billion, up 16% YoY, and a gross margin of 53%, up 4 percentage points YoY [1] - Non-IFRS operating profit was RMB 613 billion, up 19% YoY, and Non-IFRS net profit was RMB 598 billion, up 33% YoY, with an adjusted net margin of 35 8%, up 7 percentage points YoY [1] - The report forecasts 2024 2025 2026 revenues of RMB 6586 7123 7702 billion, and Non-IFRS net profits of RMB 2230 2403 2583 billion, with adjusted P E ratios of 16X 14X 13X based on the closing price on November 14, 2024 [4] Value-Added Services - Value-added services revenue in Q3 2024 was RMB 827 billion, up 9% YoY [2] - Domestic games revenue was RMB 373 billion, up 14% YoY, with flagship games like "Honor of Kings" and "Peacekeeper Elite" showing steady growth [2] - International games revenue was RMB 145 billion, up 9% YoY, with "PUBG M" and "Brawl Stars" performing well, and "VALORANT" seeing over 30% YoY growth in key overseas markets [2] - Social networks revenue was RMB 309 billion, up 4% YoY, with music subscription revenue up 20% YoY and paid members reaching 119 million, up 16% YoY [2] Marketing Services - Marketing services revenue in Q3 2024 was RMB 300 billion, up 17% YoY, driven by strong demand for video accounts, mini-programs, and WeChat Search ads [3] - Video accounts marketing revenue grew over 60% YoY in Q3 2024, with long-term potential from increased ad load rates, AI-powered ad creation, and WeChat's internal ad ecosystem [3] - Mini-program transaction volume exceeded RMB 2 trillion in Q3 2024, up by double-digit percentages YoY [3] FinTech and Business Services - FinTech and business services revenue in Q3 2024 was RMB 531 billion, up 2% YoY [4] - FinTech revenue was flat YoY, with payment transaction volume up 10% YoY despite a decline in average transaction value [4] - Business services revenue and gross profit grew YoY, driven by increased cloud services revenue and higher e-commerce transaction volumes [4] - Tencent released an upgraded version of its foundational model, Tencent Hunyuan Turbo, in Q3 2024, which doubled training and inference efficiency while halving inference costs [4] Financial Projections - The report forecasts 2024 2025 2026 revenues of RMB 6586 7123 7702 billion, with growth rates of 8 1% 8 2% 8 1% respectively [5] - Adjusted net profits are projected to be RMB 222971 240262 258316 billion for 2024 2025 2026, with growth rates of 41% 8% 8% respectively [5] - EPS based on adjusted net profit is forecasted to be RMB 24 06 25 93 27 87 for 2024 2025 2026, with P E ratios of 16X 14X 13X [5] Balance Sheet and Cash Flow - Total assets are projected to grow from RMB 1756788 billion in 2024E to RMB 2128540 billion in 2026E, with cash and cash equivalents increasing from RMB 259882 billion to RMB 457531 billion over the same period [8] - Operating cash flow is forecasted to grow from RMB 232365 billion in 2024E to RMB 278297 billion in 2026E, driven by increased net profit and stable depreciation and amortization [9] - Net cash flow is expected to increase from RMB 87562 billion in 2024E to RMB 110957 billion in 2026E [9] Profitability and Valuation - Gross margin is projected to increase from 53 08% in 2024E to 54 74% in 2026E, with net margin remaining stable around 28 7% [10] - ROE is forecasted to decline slightly from 19 63% in 2024E to 17 12% in 2026E, while ROIC remains stable around 13% [10] - P B ratio is expected to decrease from 3 6X in 2024E to 2 7X in 2026E, reflecting improved valuation metrics [10]