20170104-招商证券_香港_-腾讯控股-00700.HK-Wechat_will_be_even_more_enriched_and_engaging_11页_1mb_1mb

Tencent (700 HK) Company Report Summary

Core Content

This report provides an in-depth analysis of Tencent's strategic move with the launch of WeChat Mini Programs, highlighting its potential as a long-term growth driver for Tencent's advertising, payment, and social network businesses. The report also outlines Tencent's financial performance, valuation metrics, and future growth expectations.

Main Points

• WeChat Mini Program Overview:

  • Launched on January 9, 2017, WeChat Mini Programs offer a native app-like experience within the WeChat interface.
  • Users can access services without downloading, reducing storage and performance demands.
  • It is expected to serve as a catalyst for short-term share price growth and a long-term incremental growth driver for Tencent's core businesses.
  • Mini Programs are designed for infrequently used apps, such as utilities and services, and are seen as a more efficient solution for service providers and users alike.

• Impact on WeChat:

  • WeChat is already a dominant social platform in China, with users spending 35% of their smartphone time on it.
  • The addition of Mini Programs is expected to enhance user engagement, making WeChat even more omnipotent and integrated with O2O services.
  • The platform is likely to reduce the necessity of app stores due to its broad range of integrated functions.

• Monetization Potential:

  • Tencent's Social Networking Services (SNS) are expected to grow at 22% CAGR from FY16 to FY18.
  • Monetization is driven by subscription-based content, traffic conversion, and increased ad revenue.
  • The report emphasizes that advertising and payment are the primary monetization avenues for Tencent.

• Earnings Growth:

  • Tencent's non-GAAP earnings are forecasted to grow at 30% in FY17E, outpacing its global and Chinese peers.
  • Non-GAAP diluted EPS is expected to rise from RMB 2.59 in FY14 to RMB 7.92 in FY18E.
  • The company is expected to maintain a high ROE (Return on Equity), with 27% in FY17E compared to 19% for peers.

• Valuation Metrics:

  • P/E (Price to Earnings): Ranges from 66.8 in FY14 to 21.8 in FY18E, with a current P/E of 28.7.
  • P/B (Price to Book): Drops from 20.4 in FY14 to 6.1 in FY18E, indicating a discount relative to Chinese peers.
  • The report recommends a target price of HK$230, implying a potential upside of 21% from the current price of HK$189.4.

Key Information

Financial Highlights (RMB mn)

Revenue Growth (YoY)

Investment Recommendation

• Company Rating: BUY
• Target Price (HK$): 230
• 12-month return expectation: 10%+
• Industry Rating: OVERWEIGHT, indicating the sector is expected to outperform the market.

Strategic Implications

• Mini Program Adoption:

  • Early adopters include hotel booking, airline services, hospital appointments, and stock investment.
  • Some apps like QQ Music and OFO/Mobike are also developing Mini Programs.
  • Gaming and live streaming are currently excluded due to higher processing requirements.

• User Engagement:

  • Tencent is leveraging subscription-based content and enhanced user engagement to drive monetization.
  • The platform's user base is a key asset for monetization and traffic conversion.

• Future Outlook:

  • The mini program is expected to expand the range of services on WeChat, making it a central hub for daily activities.
  • It could disrupt traditional app stores by offering a one-stop solution for users.

Conclusion

The report highlights that Tencent's WeChat Mini Program is a strategic innovation with the potential to enhance user engagement, increase monetization opportunities, and drive long-term growth in key areas such as advertising, payments, and social networking. The company is well-positioned for continued strong earnings growth, high ROE, and outperforming peers, supported by its extensive user base and integrated platform capabilities. The BUY rating reflects the positive outlook on Tencent's future performance and valuation potential.