TENCENT(TCEHY)2025-03-23 15:39Summary of Tencent Holdings Conference Call Company Overview - Company: Tencent Holdings (Ticker: 0700.HK) - Industry: Internet & New Media Key Financial Highlights - Revenue Growth: Total revenue in 4Q24 rose by 11% year-on-year (y-y) to CNY 172,446 million, exceeding Bloomberg consensus by 2% [1] - Profit Performance: Non-IFRS operating profit grew by 21% y-y, aligning with market expectations but slightly below internal forecasts by 1.5% [1] - Operating Margin: Improved by 2.8 percentage points (pp) to 34.5%, slightly below the Street's estimate of 35% [1] - Earnings Per Share (EPS): Non-IFRS EPS increased by 33% y-y, surpassing market forecasts by 8% [1] Advertising Business Insights - Ad Revenue Growth: Ad revenue grew by 17% y-y, outperforming the forecast of 13% [2] - Drivers of Growth: 1. Integration of AI in ad technology leading to higher return on investment (ROI) 2. Video Account (VA) ads surged over 60% y-y in 4Q24, with ad load remaining low compared to competitors [2] 3. WeChat search emerging as a new ad driver due to increased search queries [2] - Future Projections: Nomura projects ad revenue to grow by 18% in 1Q25 and FY25F, compared to 20% growth in the previous year [2] Capital Expenditure (Capex) Strategy - Capex Increase: Capex increased fourfold y-y to USD 5 billion in 4Q24, driven by demand for AI infrastructure [3] - Future Capex Plans: Planned capex for 2025 is expected to be a "low teens" percentage of revenue, up from 8% in 9M24, translating to an estimated USD 11.7 billion [3] - Margin Impact: Expected margin pressure is manageable, with anticipated incremental revenue from AI-enhanced services [3] Share Buyback and Target Price - Share Buyback: Tencent plans to repurchase USD 10.3 billion in shares in 2025, down from USD 14.4 billion in the previous year [4] - Target Price Adjustment: Target price raised to HKD 648, implying a FY25F P/E of 23x, up from 19x previously [4] - Current Valuation: Stock trading at a FY25F P/E of 19.3x [4] Financial Projections - Revenue Estimates: - FY25F revenue projected at CNY 711,110 million, a 2% increase from previous estimates [17] - FY26F revenue projected at CNY 759,243 million, also a 2% increase [17] - Profit Estimates: - Non-IFRS net profit for FY25F revised to CNY 245,241 million, a 9% increase from prior estimates [17] - Non-IFRS EPS for FY25F adjusted to CNY 26.15, a 9% increase [17] Risks and Challenges - Market Risks: High market expectations, potential slowdown in PC game revenues, aggressive spending on WeChat Pay, and competition from disruptive products [12][26] Additional Insights - Business Segments: Tencent's diverse offerings include gaming, online advertising, fintech, and cloud services, with WeChat being a significant platform [11] - Valuation Methodology: Valuation of core businesses includes online gaming at USD 191 billion, online advertising at USD 281 billion, fintech at USD 160 billion, and cloud services at USD 32 billion [12][25] This summary encapsulates the key points from Tencent Holdings' conference call, highlighting financial performance, growth drivers, strategic plans, and potential risks.