20220818-招银国际-腾讯控股-00700.HK-Eyes_on_efficiency_and_video_accounts_upside_4页_783kb

Tencent (700 HK) Company Update Summary

Core Content and Key Highlights

Tencent reported its 2Q22 results, with revenue down 3.1% YoY to RMB134.0bn and non-GAAP net profit declining 17% YoY to RMB28.1bn. Despite the revenue miss, the company exceeded expectations in margin improvement and cost control, leading to a better-than-feared performance. The report suggests that the worst quarter for Tencent is behind, and the focus should now shift to the recovery of advertising revenue in 2H22E and the long-term upside from video accounts.

Main Points and Analysis

• Revenue Performance:

  • Revenue in 2Q22 was slightly below consensus and estimates, with the decline attributed to moderate game performance and softer FBS (Financial and Business Services).
  • The VAS (Value-Added Services) segment remained stable, while the ads segment declined by 18% YoY, although this was less than the estimate.
  • The others segment showed a slight increase in revenue.

• Margin and Profit:

  • Non-GAAP net profit declined 17% YoY but was 15% above consensus, reflecting effective cost control.
  • The operating margin improved to 21% in 2Q22, up 2 percentage points from the previous quarter.
  • The company expects efficiency improvements to continue in 2H22E, which will help resume YoY earnings growth.

• Video Accounts:

  • Video accounts are expected to be a long-term growth driver, with monetization progressing faster than anticipated.
  • Tencent launched in-feed ads in July and plans to introduce bidding ads in August.
  • Management guided that video accounts could contribute over RMB1bn in revenue quarterly within five quarters.

• Earnings Revision:

  • CMBIGM has raised its earnings estimates for FY22-24E by 1-4%, with a target price of HK$480.
  • The adjusted earnings per share (EPS) for FY22-24E are estimated at RMB11.4, RMB13.2, and RMB15.1, respectively.
  • The P/E ratio for FY23E is at 19.6x, and for FY24E at 17.1x.

Key Financial Metrics

Strategic Outlook

• Game Segment: The game segment declined by 1% YoY, with domestic games largely in line and international games decelerating to -1% YoY.
• Ads Recovery: The 2Q22 ads performance was a trough, with a 18% YoY decline, but the report expects a gradual recovery in 2H22E due to lockdown relaxation and macroeconomic recovery.
• Video Accounts: These are seen as a key long-term growth driver, with monetization progressing faster than expected and a clear path to revenue contribution.

Investment Recommendation

• Rating: BUY (Maintain)
• Target Price: HK$480
• Current Price: HK$303
• Upside/Downside: 58.4%

Analyst Information

• Sophie Huang: (852) 3900 0889 | sophiehuang@cmbi.com.hk
• Eason Xu: (852) 3900 0849 | easonxu@cmbi.com.hk

Stock Data

Shareholding Structure

Share Performance

Auditor

• Auditor: PwC

Related Reports

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• Looking into 2H21 recovery – 24 Mar 2022

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over next 12 months

• HOLD: Stock with potential return of +15% to -10% over next 12 months

• SELL: Stock with potential loss of over 10% over next 12 months

• NOT RATED: Stock not rated by CMBIGM

• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark over next 12 months

• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark over next 12 months

• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark over next 12 months

Disclaimer

• The report is for informational purposes only and should not be used as a basis for investment decisions.
• CMBIGM does not provide individually tailored investment advice.
• There are risks involved in trading any securities, and actual events may differ materially from those in the report.
• The report is not an offer or solicitation to buy or sell any security.
• CMBIGM and its affiliates may have investment banking relationships with the issuers covered in this report, which may lead to conflicts of interest.