2024-04-02 16:00Investment Rating - The report maintains a "Buy" rating for the company [2][17]. Core Insights - The company reported a revenue of 155.2 billion RMB in Q4 2023, representing a year-over-year increase of 7%. The Non-IFRS net profit reached 42.7 billion RMB, up 44% year-over-year. The gross margin improved to 50%, an increase of 7.3 percentage points year-over-year and 0.5 percentage points quarter-over-quarter, primarily due to a higher proportion of high-margin businesses [2][3][4]. Revenue Breakdown - Revenue from value-added services was 69.1 billion RMB, down 2% year-over-year, mainly due to declines in revenue from "Honor of Kings" and "Peacekeeper Elite," as well as decreases in music and game live streaming income. The online advertising business generated 29.8 billion RMB, up 21% year-over-year, driven by increased demand for video account advertising. The fintech and enterprise services revenue reached 54.4 billion RMB, up 15% year-over-year, benefiting from growth in commercial payments, wealth management, consumer loans, and video account sales service fees [3][4]. Profitability and Cost Management - The company's profit growth in Q4 was robust, attributed to a shift in revenue structure towards higher-quality income sources such as video account advertising and live streaming sales fees, while the proportion of low-margin businesses like music and game live streaming decreased. Additionally, reductions in content costs, fintech transaction costs, and bandwidth/server costs contributed to the improvement in gross margin. Despite marketing expenses reaching 11 billion RMB in Q4, a 79% year-over-year increase, net profit continued to show high-quality growth [4][6]. Financial Projections - The company is projected to achieve revenues of 668.3 billion RMB, 744.7 billion RMB, and 817.3 billion RMB for the years 2024, 2025, and 2026, respectively. The Non-IFRS net profits are expected to be 194.9 billion RMB, 218.0 billion RMB, and 241.1 billion RMB for the same years [4][6][8]. Key Financial Metrics - For 2023, the company reported total revenue of 609.0 billion RMB, with a year-over-year growth of 9.8%. The Non-IFRS net profit was 157.7 billion RMB, reflecting a 40.3% increase year-over-year. The gross margin for 2023 was 48.1%, with projections for 2024, 2025, and 2026 to be 52.7%, 54.7%, and 55.2%, respectively [6][8][16]. Market Position and Future Outlook - Although the company's gaming business is experiencing a temporary slowdown in growth, the long-term outlook remains positive due to a robust pipeline of new games and continuous expansion of profit margins. The advertising revenue is expected to recover due to improvements in video account and advertising technology, while the fintech business is anticipated to benefit from offline recovery and enhanced compliance capabilities [4][6].