Expect solid earnings growth and enhancing shareholder return in FY24

Investment Rating - The report maintains a "BUY" rating for Tencent with a target price of HK$445.0, reflecting a potential upside of 43.7% from the current price of HK$309.60 [10][11]. Core Insights - Tencent is expected to achieve solid earnings growth and enhance shareholder returns in FY24, with a forecasted total revenue increase of 6% YoY to RMB158.6 billion in 1Q24E and a non-IFRS net income growth of 31% YoY to RMB43.1 billion [10][11]. - The company is navigating short-term headwinds in its games business but anticipates recovery in revenue growth in 2Q24E due to new game launches [10][11]. - Advertising revenue is projected to grow by 16% YoY in 1Q24E, driven by strong demand for Video Account ads and improved ad technology [10][11]. Financial Summary - Revenue (RMB million) for FY22A was 554,552, FY23A was 609,015, and is expected to reach 655,548 in FY24E, reflecting a YoY growth of 7.6% [2]. - Adjusted net profit (RMB million) is forecasted to grow from 157,688 in FY23A to 185,358 in FY24E, representing a YoY growth of 17.5% [2]. - The gross margin is expected to improve from 48.1% in FY23A to 49.9% in FY24E [2]. Business Segment Valuation - The valuation for the online games business is set at HK$160.3 based on a 17x 2024E PE, aligning with the average PE of global gaming peers [5]. - The fintech business is valued at HK$85.4 based on a 4.0x 2024E PS, reflecting Tencent's strong position in China's digital payment market [6]. - The advertising business is valued at HK$79.4 based on a 19x 2024E PE, consistent with industry averages [14]. Strategic Investments - Tencent's strategic investments are valued at HK$62.0, applying a 30% holding company discount to the fair value of its equity investments [15]. - The report highlights Tencent's significant stakes in various companies, contributing to its overall valuation [19].