TENCENT(00700) 华泰证券·2025-01-19 05:00Investment Rating - The report maintains a "Buy" rating for Tencent Holdings with a target price of HKD 492.22 [6][26] Core Views - Tencent's 4Q24 revenue is expected to grow by 8% YoY, with adjusted net profit increasing by 25% to RMB 53.5 billion [1] - Domestic gaming revenue is projected to accelerate by 18% YoY, while advertising revenue growth may slow to 13% due to the Olympics [1] - Financial technology revenue is expected to recover to 4% growth in 4Q24 [1] - Key catalysts for 2025 include the launch of new AI features, increased ad load rates on Video Accounts, and the expected monthly gross revenue of RMB 5-10 billion from the mobile game "Valorant" [1] Business Segments Advertising - 4Q24 advertising revenue growth is expected to slow to 13% YoY due to the Olympics and delayed recovery effects [2] - Ad load rates on Video Accounts have stabilized at 3-4%, with potential for further growth [2] - The integration of WeChat Mini Stores with public and private domain traffic is expected to drive GMV growth, with a projected GMV of RMB 500 billion in 2025 [2][11] Gaming - 4Q24 gaming revenue is expected to grow by 16% YoY, with domestic and overseas gaming revenue increasing by 18% and 13% respectively [3] - New game releases with longer deferred revenue cycles are expected to positively impact 4Q24 results [3] - Key games to watch include "DnF Mobile" and the upcoming "Honor of Kings: World" and "Valorant Mobile" [3] Financial Technology - Financial technology revenue is expected to grow by 4% YoY in 4Q24, driven by the recovery of offline payment services [2] - WeChat Search has started displaying products from WeChat Mini Stores, and the "Gift Sending" feature is expected to drive further growth [2][11] AI and Technological Innovations - Tencent is expected to launch new AI features in 2025, which could enhance mobile applications and improve user stickiness [1] - Tencent's AI-powered advertising tool, "Miaosi," has shown significant improvements in ad performance, with a 30% increase in Video Account ad spend during the Double 11 period [16] - Tencent's open-source MoE model, "Hunyuan Large," and 3D generation model, "Hunyuan 3D-1.0," are expected to drive innovation in AI applications [17][19] Financial Projections - Revenue forecasts for 2024-2026 have been slightly adjusted, with expected revenues of RMB 655.3 billion, RMB 712.8 billion, and RMB 785.1 billion respectively [4][22] - Adjusted net profit forecasts for 2024-2026 have been revised to RMB 220.9 billion, RMB 247.2 billion, and RMB 280.9 billion, reflecting high-margin business base effects [4][22] Valuation - The SOTP valuation for Tencent is HKD 492.22, based on a sum-of-the-parts analysis [26] - The valuation includes contributions from gaming, social networks, online advertising, financial technology, and enterprise services, with gaming contributing the largest share at 37.5% [26] Industry Comparison - Tencent's gaming and advertising businesses are compared to global peers, with Tencent's gaming PE at 14.2x, lower than the global average of 20.2x, and advertising PE at 13.8x, lower than the global average of 21.8x [26][28]