Group 1 - The total buyback scale in the Hong Kong stock market reached 262.3 billion HKD in 2024, setting a historical record, as listed companies engaged in share repurchases to stabilize stock prices and manage market value [1] - Major companies such as HSBC Holdings, AIA Group, and Meituan-W each executed buybacks exceeding 10 billion HKD [2] - Tencent Holdings led the buyback activities with over 110 billion HKD, focusing on sectors including information technology, finance, non-essential consumer goods, and healthcare [3]

Group 1 - Tencent Holdings has received net purchases from southbound funds for four consecutive days, with a cumulative net purchase amount of 44.24 billion HKD and a stock price increase of 3.45% [1] - On December 24, the total trading volume of active stocks through the Hong Kong Stock Connect was 159.69 billion HKD, with a net purchase amount of 20.56 billion HKD [1] - On the same day, Tencent Holdings had a trading volume of 14.87 billion HKD through the Hong Kong Stock Connect, with a net purchase amount of 0.63 billion HKD [1]

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings (00700 HK) [3] Core Viewpoints - Tencent's AI strategy focuses on "industrial practicality" with a dual emphasis on large models and applications The company has been investing in AI since 2012 and has developed a comprehensive AI ecosystem including the Hunyuan large model and various AI tools and applications [3] - Tencent's AI layout covers both B2B and B2C sectors with applications integrated into existing products and new AI-native applications The company's AI capabilities are ranked first in 8 out of 11 core tasks in the SuperCLUE Chinese Large Model Benchmark [21] - The report predicts Tencent's adjusted net profit for 2024-2026 to be 2174 2406 and 2653 billion yuan respectively with corresponding PE (Non-IFRS) ratios of 17 15 and 14 times [21] Development History - Tencent began its AI journey in 2012 with the establishment of the YouTu Lab focusing on computer vision technologies [13] - In 2016 Tencent established the AI Lab which focused on computer vision speech recognition natural language processing and machine learning [14] - In 2018 Tencent upgraded its AI strategy to focus on general AI research and established the Robotics X lab [15] - In 2022 Tencent publicly disclosed the development of its Hunyuan large model which covers NLP CV and multimodal capabilities [17] - By 2024 Tencent's Hunyuan large model had been tested in over 600 internal business scenarios and launched AI-native applications like Tencent Yuanqi and Tencent Yuanbao [18] AI Layout and Applications - Tencent's AI ecosystem includes both B2B and B2C applications with B2B focusing on large models cloud services and PaaS while B2C includes AI-enhanced existing applications and AI-native applications [20] - The Hunyuan large model developed by Tencent has trillion-scale parameters and excels in multimodal capabilities including text-to-image and video generation [25] - Tencent has integrated AI into various internal applications such as Tencent Meeting WeChat and QQ with nearly 700 business scenarios already using the Hunyuan model [26] - Tencent's AI applications in advertising have significantly improved ad targeting and efficiency with the new ad system 3 0 covering 95% of Tencent's ad placements and improving stability by 26% [53] - In gaming Tencent's AI engine GiiNEX has reduced the time required for city modeling from 5 days to 25 minutes [55] Financial Projections - The report forecasts Tencent's operating income for 2024-2026 to be 658160 716550 and 782730 million yuan respectively with year-on-year growth rates of 8 07% 8 87% and 9 24% [24] - Tencent's adjusted net profit for 2024-2026 is expected to be 217396 240603 and 265288 million yuan with year-on-year growth rates of 38% 11% and 10% respectively [24] - The PE (Non-IFRS) ratios for 2024-2026 are projected to be 17 15 and 14 times [21]

Investment Rating - The report initiates coverage with a "Buy" rating for Tencent Holdings, citing its leadership in the internet and gaming sectors, and its potential to benefit from the continued growth of the gaming industry [1][95] Core Views - Tencent is China's largest social platform company, with a massive user base that provides a solid foundation for its various businesses As of Q2 2024, QQ has 571 million monthly active users (MAUs), while WeChat has 1 371 billion MAUs [1] - Tencent is a leader in China's gaming industry, with a 48 2% market share in 2023 The company is expected to benefit from the growth of the mobile gaming industry, which is projected to grow at 4 65%, 3 91%, and 3 30% from 2024 to 2026 respectively [1] - Video accounts are a key growth driver for Tencent's advertising business In Q2 2024, the company's online advertising revenue grew 19% YoY to RMB 29 9 billion, driven by video accounts and long-form video content [1] - Tencent is one of the duopolies in China's payment industry, with WeChat Pay and Alipay accounting for over 94% of the market share in Q3 2023 The third-party personal payment market is expected to grow at 10 8%, 9 7%, and 8 9% from 2024 to 2026 respectively [1] Business Segments Social and Communication - QQ and WeChat are Tencent's core social tools As of Q2 2024, QQ has 571 million MAUs, while WeChat has 1 371 billion MAUs [1][51] - Video accounts are a strategic growth area for Tencent, with significant user engagement and advertising revenue growth In 2023, video account advertising revenue exceeded RMB 3 billion in Q2, and the annual GMV surpassed RMB 100 billion [55][56] Gaming - Tencent is the leader in China's gaming industry, with a 48 2% market share in 2023 The company has over 170 self-developed and licensed games, including popular titles like "Honor of Kings" and "PUBG Mobile" [1][65] - The mini-game market is growing rapidly, with 750 million active users in February 2024, accounting for 80 3% of the total traffic Tencent's mini-game revenue grew over 30% YoY in H1 2024 [1][65] Online Advertising - Tencent's online advertising revenue grew 22 65% YoY in H1 2024, driven by video accounts and long-form video content The company expects the online advertising business to grow at 19%, 21%, and 23% from 2024 to 2026 respectively [88][90] FinTech and Business Services - Tencent's FinTech and Business Services segment is benefiting from the growth of the third-party payment and cloud services markets The third-party personal payment market is expected to grow at 10 8%, 9 7%, and 8 9% from 2024 to 2026 respectively [76][77] - Tencent Cloud holds a 16% market share in China's cloud infrastructure services market in Q2 2024 The company is leveraging its AI capabilities, such as the Hunyuan large model, to attract more customers [81][82] Financial Performance and Valuation - Tencent's revenue grew 9 82% YoY in 2023 to RMB 609 015 billion, with a net profit of RMB 115 216 billion The company expects revenue to grow at 8 56%, 9 24%, and 10 13% from 2024 to 2026, with net profit growing at 47 86%, 12 22%, and 13 13% respectively [2][95] - The company's EPS is expected to be RMB 18 38, RMB 20 63, and RMB 23 34 for 2024, 2025, and 2026 respectively, with a PE ratio of 20 16x, 17 96x, and 15 88x based on the closing price of HKD 402 80 on November 27, 2024 [95] Industry Outlook - China's mobile gaming industry is expected to grow at 4 65%, 3 91%, and 3 30% from 2024 to 2026, driven by the recovery of the economy and the normalization of game license approvals [68] - The online advertising market is projected to grow at a CAGR of 11% from 2024 to 2029, with video accounts playing a significant role in driving Tencent's advertising revenue growth [73][74]

Investment Rating - The investment rating for Tencent Holdings is "Buy" with the previous rating also being "Buy" [2]. Core Insights - Tencent's revenue for Q3 2024 reached 167.2 billion yuan, representing an 8% year-on-year growth. Non-IFRS operating profit was 61.3 billion yuan, up 19% year-on-year, and Non-IFRS net profit attributable to shareholders was 59.8 billion yuan, reflecting a 33% year-on-year increase [2]. - The gaming business showed strong growth, with revenue of 51.8 billion yuan in Q3, a 13% year-on-year increase. Deferred revenue reached a record high of 113.1 billion yuan, up 23% year-on-year, providing solid support for future revenue growth [2][3]. - The advertising business, particularly through the video account, has significant potential for commercialization, with Q3 marketing services revenue at 30 billion yuan, a 17% year-on-year increase [2][3]. Financial Summary - For FY2024-2026, the projected revenues are 657.1 billion yuan, 717.8 billion yuan, and 776.6 billion yuan, with year-on-year growth rates of 7.9%, 9.2%, and 8.2% respectively. Non-IFRS net profits are expected to be 222.6 billion yuan, 251.7 billion yuan, and 275.3 billion yuan, with growth rates of 41.1%, 13.1%, and 9.4% respectively [3][4]. - Key financial metrics for 2024E include total revenue of 554.6 billion yuan, a gross margin of 52.8%, and a return on equity (ROE) of 19.7% [4]. Business Segments - The gaming segment continues to thrive, with domestic game revenue of 37.3 billion yuan, a 14% year-on-year increase, driven by flagship games like "Honor of Kings" and "Peacekeeper Elite" [2]. - The social network revenue grew by 4% year-on-year to 30.9 billion yuan, with music subscription numbers increasing by 16% to 119 million [2]. - The financial technology and enterprise services segment saw revenue of 53.1 billion yuan, a 2% year-on-year increase, with growth in wealth management services due to an expanding user base [2]. Market Position - The combined monthly active accounts for WeChat and QQ reached 1.382 billion, with a net increase of 11 million quarter-on-quarter [2]. - The company is focusing on enhancing its ToB (business-to-business) services, with significant growth in cloud services and merchant technology service fees [2].

Investment Rating - The investment rating for Tencent Holdings is "Buy" with a target price of HKD 496.8, representing a potential upside of 23% from the recent closing price of HKD 403.8 [6]. Core Insights - Tencent's Q3 FY2024 results exceeded market expectations, with a revenue increase of 8% year-on-year to HKD 167.19 billion, driven by robust growth in gaming and advertising sectors. The Non-GAAP net profit attributable to shareholders was HKD 59.81 billion, reflecting a 33% year-on-year increase [1][3]. Business Performance Summary - **User Engagement**: The combined monthly active accounts for WeChat and WeChat reached 1.382 billion, a 3% increase year-on-year. QQ's mobile terminal monthly active accounts were 562 million, up 0.7% year-on-year. The small program transaction ecosystem saw over HKD 2 trillion in transaction volume, growing by over 10% year-on-year [2][9]. - **Gaming Sector**: Tencent's gaming revenue was HKD 51.8 billion, a 12.6% year-on-year increase. Domestic game revenue grew by 14% to HKD 37.3 billion, driven by popular titles such as "Honor of Kings" and "PUBG MOBILE." International game revenue reached HKD 14.5 billion, a 9% year-on-year increase, marking a quarterly record [11][12]. - **Advertising and Marketing Services**: The marketing services revenue grew by 17% year-on-year to HKD 29.99 billion, supported by strong demand for ads on video accounts and mini-programs. Financial technology and enterprise services revenue was HKD 53.09 billion, a 2% year-on-year increase, with growth in wealth management services offset by a decline in payment services due to weak consumer spending [3][16]. - **Profitability Metrics**: The overall gross margin stabilized at 53%, benefiting from increased contributions from high-margin revenue sources such as domestic gaming and advertising. The adjusted net profit for Q3 was HKD 59.81 billion, significantly exceeding expectations [1][21]. - **Shareholder Value**: Tencent has been actively repurchasing shares, with a target of HKD 100 billion for the year, having already completed over HKD 90 billion in buybacks, which is expected to enhance shareholder returns [23].

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings with a target price of HKD 430 [1]. Core Insights - Tencent's Q3 2024 performance exceeded expectations, with a Non-IFRS net profit of CNY 598.13 billion, a year-on-year increase of 33%, surpassing the Bloomberg consensus estimate of CNY 543.69 billion [1]. - The company's revenue for Q3 2024 was CNY 1,672 billion, reflecting an 8% year-on-year growth, slightly below expectations [1]. - The report highlights the resilience of Tencent's advertising business and the strong performance of its gaming segment, particularly in the domestic market [1]. Financial Performance - Non-IFRS net profit for Q3 2024 was CNY 598.13 billion, with a Non-IFRS net profit margin of 35.8%, up 6.7 percentage points year-on-year [36]. - The company's tax expenses were CNY 89 billion, significantly lower than the expected CNY 124.2 billion, contributing to the net profit growth [36]. - Tencent's revenue from value-added services reached CNY 827 billion, a 9.17% increase year-on-year, driven by strong performance in domestic gaming [45]. WeChat Ecosystem - The WeChat ecosystem continues to grow, with a combined monthly active user count of 1.38 billion, a 3% year-on-year increase [58]. - WeChat's mini-programs achieved a transaction volume exceeding CNY 2 trillion, reflecting over a 10% year-on-year growth [59]. - The introduction of WeChat Shops is expected to enhance sales conversion rates and provide a standardized trading environment for merchants [63]. Gaming Segment - Domestic gaming revenue for Q3 2024 was CNY 373 billion, a 14% year-on-year increase, driven by flagship games like "Honor of Kings" and "Peacekeeper Elite" [66]. - The overseas gaming revenue was CNY 145 billion, a 9% year-on-year increase, although slightly below expectations due to extended revenue deferral periods [75]. - The report anticipates continued growth in the gaming segment, supported by new product launches and the ongoing success of established titles [66]. Social Network and Marketing Services - Social network revenue for Q3 2024 was CNY 309 billion, a 4% year-on-year decline, primarily due to decreased revenue from music and game live streaming services [79]. - Marketing services revenue reached CNY 300 billion, a 17% year-on-year increase, benefiting from the growth of mini-programs and increased advertising spending within the WeChat ecosystem [45][79]. - The report expects the marketing services segment to continue delivering above-industry growth due to the low base effect and the expansion of WeChat's advertising capabilities [79].

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings [5][24]. Core Insights - Tencent's Q3 2024 revenue reached 167.2 billion RMB, with a year-over-year (YoY) growth of 8% and a quarter-over-quarter (QoQ) growth of 4%, slightly below Bloomberg consensus expectations of 167.9 billion RMB. The Non-GAAP net profit attributable to shareholders was 59.8 billion RMB, reflecting a YoY increase of 33% and a QoQ increase of 4%, surpassing consensus expectations of 54.4 billion RMB [1][2]. Summary by Relevant Sections Financial Performance - Q3 2024 gaming revenue was 51.8 billion RMB, showing a YoY increase of 13% and a QoQ increase of 7%. Domestic game revenue grew by 14%, driven by titles such as "Valorant," "Honor of Kings," "Peacekeeper Elite," and "Dungeon & Fighter: Origin." International game revenue increased by 9%, with strong performances from "PUBG Mobile" and "Brawl Stars" [2][12]. - Social network revenue for Q3 2024 was 30.9 billion RMB, with a YoY increase of 4% and a QoQ increase of 2% [2]. - Online advertising revenue reached 30 billion RMB, reflecting a YoY increase of 17% and a QoQ increase of 0%. Demand from advertisers in video accounts, mini-programs, and search services contributed to this growth [2][13]. - Financial and enterprise services revenue was 53.1 billion RMB, with a YoY increase of 2% and a QoQ increase of 5%. Financial services revenue remained stable YoY, while enterprise services revenue grew due to merchant technology service fees [2][12]. Earnings Forecast and Valuation - The report forecasts Tencent's revenue for 2024 and 2025 to be 657.9 billion RMB and 713.0 billion RMB, respectively, with YoY growth rates of 8.0% and 8.4%. Adjusted net profit is expected to be 221.8 billion RMB and 244.4 billion RMB, reflecting growth rates of 45.0% and 10.2% [3][24]. - The estimated fair value based on the Sum-of-the-Parts (SOTP) valuation method is 485.21 HKD per share [5][24]. Business Segments Valuation - The core business valuation is estimated at 4.08 trillion HKD, with gaming business valued at 1.77 trillion HKD, marketing services at 973.9 billion HKD, and financial and enterprise services at 1.23 trillion HKD [24][23].

Investment Rating - The investment rating for Tencent Holdings (0700.HK) is "Buy" and is maintained [5]. Core Insights - Tencent reported Q3 2024 revenue of 167.2 billion, representing an 8% year-on-year increase and a 4% quarter-on-quarter increase. Operating profit reached 53.3 billion, up 20% year-on-year and 5% quarter-on-quarter. Non-IFRS net profit attributable to shareholders was 59.8 billion, reflecting a 33% year-on-year increase and a 4% quarter-on-quarter increase [2][6]. Summary by Sections Revenue Performance - The revenue growth was driven by stable performance from evergreen games and the addition of new games, leading to accelerated revenue growth in both domestic and overseas markets. Domestic game revenue grew 14% year-on-year to 37.3 billion, while overseas game revenue increased 9% year-on-year to 14.5 billion [7]. Advertising and AI Impact - Advertising revenue showed strong growth, with marketing services revenue increasing 16.6% year-on-year to 30 billion, supported by AI enhancements and the upcoming Paris Olympics boosting brand advertising [7]. Profitability and Margins - Tencent's gross margin remained high at 53.1%, with notable increases in gross margins across various segments. However, marketing service margins saw a slight decline due to rising content costs [8]. Future Outlook - The value of the WeChat ecosystem continues to manifest, with expectations for sustained high profit margins. The ongoing advancements in AI are anticipated to inject continuous growth momentum into the company [9].

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings (00700) with a target price of 404.2 HKD [1] Core Views - Tencent's 3Q2024 revenue increased by 8% YoY, with Non-IFRS operating profit up 19% YoY, showing a multiplier effect where profit growth outpaces revenue growth [1] - Non-IFRS net profit attributable to shareholders rose 33% YoY, exceeding Bloomberg estimates by 10% [1] - The company's gross margin improved by 3.6 percentage points YoY, while operating expenses increased by 12% YoY, slightly above expectations but still at a relatively low rate [1] Business Segments Online Games - Online game revenue grew 13% YoY in 3Q2024, driven by domestic titles such as "Valorant," "Honor of Kings," "Peacekeeper Elite," and "Dungeon & Fighter: Origin" [1] - Domestic game revenue increased 14% YoY, slightly above expectations, while overseas game revenue grew 9% YoY (11% on a constant currency basis), slightly below expectations [1] - The company expects game revenue growth to accelerate further in 4Q2024, with a focus on the integration of "Dungeon & Fighter: Origin" and a major content update planned for the Chinese New Year [1] Advertising Services - Advertising revenue increased 17% YoY in 3Q2024, in line with expectations, driven by growth in gaming and e-commerce ad spending [1] - Video ad revenue grew over 60% YoY, with ad load rates still significantly lower than peers, indicating room for further inventory expansion [1] - Search ad revenue grew over 100% YoY, benefiting from improved search relevance through LLM capabilities [1] Fintech and Business Services (FBS) - FBS revenue grew 2% YoY in 3Q2024, in line with expectations but slightly below Bloomberg estimates [1] - Payment TPV growth rebounded in October, with GPU-related cloud revenue now accounting for a double-digit percentage of IaaS cloud revenue, indicating growing contributions from AI-driven computing demand [1] Investment Recommendation - The report raises the forecast for Non-IFRS net profit attributable to shareholders for 2024-2026 to 2281/2649/2940 billion yuan (previously 2178/2517/2786 billion yuan), representing YoY growth of 45%/16%/11% [1] - As of 2024/11/17, Tencent's stock price corresponds to 2024/2025/2026 forecast P/E ratios of 15x/12x/11x, with the 12-month Bloomberg forward P/E below the 5-year median by 1.1 standard deviations, indicating relatively low valuation [1] - The report expects accelerated game growth, improved advertising and financial services performance, and potential share buybacks to support valuation recovery, maintaining a "Buy" rating [1]