腾讯控股：Solid core businesses; upbeat on long-term development of e-commerce and AI

Investment Rating - Maintain BUY rating with a target price of HK$525 0, implying a 34 7$389 80 [1][3] Core Views - Tencent is expected to deliver solid earnings performance in 4Q24, driven by strong games revenue growth and resilient marketing business [1] - Total revenue is forecasted to grow by 8% YoY to RMB167 6bn, with non-IFRS net income growing by 29% YoY to RMB55 2bn in 4Q24 [1] - Long-term growth initiatives like Weixin e-commerce and AI are viewed positively, with management optimistic about Weixin's role in the e-commerce ecosystem and AI as a key growth driver for the marketing business [1][8] Earnings Summary - Revenue is expected to grow from RMB554 6bn in FY22 to RMB755 8bn in FY26, with adjusted net profit increasing from RMB115 6bn in FY22 to RMB257 6bn in FY26 [2] - Adjusted EPS is projected to rise from RMB12 13 in FY22 to RMB26 60 in FY26 [2] - P/E ratio is expected to decline from 55 2x in FY22 to 17 4x in FY26, reflecting improved earnings growth [2] Business Forecasts and Valuation - Revenue forecasts for FY24-26E are largely unchanged, with slight downward revisions of -0 1% to -0 3% [9] - Gross margin is expected to improve from 53 1% in FY24E to 54 4% in FY26E, driven by higher-margin games and marketing businesses [9] - Operating margin is projected to increase from 31 9% in FY24E to 33 7% in FY26E [9] - The SOTP-derived target price of HK$525 0 includes valuations for games (HK$199 9), SNS (HK$29 4), marketing (HK$110 3), fintech (HK$82 5), cloud (HK$22 0), strategic investments (HK$68 4), and net cash (HK$12 7) [10][11][12][13][14] Key Takeaways from NDR - Weixin e-commerce is positioned as a connector in the ecosystem, leveraging third-party services and technology to reduce transaction frictions [8] - AI remains a key growth driver for the marketing business, with Tencent maintaining leadership due to its large user base and use cases [8] - Tencent's inclusion in the US CMC list and removal from the USTR "Notorious Markets List" are seen as positive developments [8] Peer Comparison - Tencent's gaming business is valued at an 18x 2025E PE, in line with global peers like NetEase and Electronic Arts [16] - The marketing business is valued at a 20x 2025E PE, reflecting its resilient ad revenue growth supported by Weixin Video Account and Mini Program [16] - Fintech and cloud businesses are valued at premiums to peers, reflecting Tencent's strong market position and growth potential [16][17] Strategic Investments - Tencent's strategic investments are valued at HK$68 4 per share, with significant stakes in companies like PDD Holdings (14 1%), Sea Ltd (18 2%), and Spotify (8 4%) [19] - A 30% holding company discount is applied to the fair value of equity investments [19]