TENCENT(00700) 甬兴证券·2024-12-03 12:33Investment 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]