TENCENT(00700) 民生证券·2024-09-24 05:48Investment Rating - The report initiates coverage on Tencent Holdings (00700 HK) with a "Recommend" rating [3] Core Views - Tencent is an absolute leader in the internet industry with diversified shareholder return methods The company plans to double its share buyback scale to over HKD 100 billion in 2024 [2] - The company's high-quality endogenous growth momentum has recovered with high-margin businesses accounting for a larger proportion In Q2 2024 Tencent achieved total revenue of RMB 1611 billion up 8% YoY with gross profit of RMB 859 billion up 213% YoY and gross margin of 533% up 58 percentage points YoY [2] - Tencent's game business is improving and the commercialization space for Video Accounts is vast Key drivers include the recovery of flagship games strong performance of new games and the rapid growth of Video Account advertising revenue [3] Financial Analysis Revenue - In 2023 Tencent's revenue reached RMB 6090 billion up 98% YoY with financial technology and enterprise services and game businesses contributing the most [20] - In Q2 2024 Tencent's domestic game revenue was RMB 346 billion up 9% YoY while overseas game revenue was RMB 139 billion up 9% YoY [22] Profitability - Tencent's gross profit in 2023 was RMB 293109 billion up 228% YoY with gross margin increasing from 431% in 2022 to 481% in 2023 [24] - In Q2 2024 Tencent's Non-IFRS net profit was RMB 573 billion up 526% YoY with a Non-IFRS net margin of 356% up 104 percentage points YoY [2] Business Highlights Games - Domestic games are recovering with flagship games like "Honor of Kings" and "Peacekeeper Elite" showing positive growth in Q2 2024 [32] - Overseas games are performing well with "PUBG MOBILE" and "NIKKE" showing strong growth Supercell's games are also contributing significantly to overseas revenue [39][41] Video Accounts - Video Account advertising revenue grew over 80% YoY in Q2 2024 driven by increased user engagement and live streaming e-commerce [52] - The commercialization potential of Video Accounts is vast with further growth expected from increased ad load rates and user engagement [54] Financial Technology - Tencent's financial technology business saw slower growth in Q2 2024 with payment transaction volume stabilizing and wealth management revenue growing double-digit YoY [3] - The company is focusing on improving payment penetration and convenience with initiatives like "foreign card binding" and "Hong Kong wallet expansion" [64] Social Networks - Social network revenue in Q2 2024 was RMB 303 billion up 2% YoY driven by growth in music and video subscription revenue as well as mini-game platform service fees [46] - Mini-games on WeChat have shown strong growth with MAU exceeding 500 million and high user retention rates [48] Valuation and Forecast - The report forecasts Tencent's revenue for 2024 2025 and 2026 to be RMB 6607 billion RMB 7214 billion and RMB 7819 billion respectively with Non-IFRS net profit of RMB 2159 billion RMB 2421 billion and RMB 2588 billion respectively [3] - Based on the closing price on September 23 2024 the adjusted PE ratios for 2024 2025 and 2026 are 15X 14X and 13X respectively [3]