20211111-招银国际-腾讯控股-00700.HK-Looking_beyond_2H21_ads_headwinds_4页_794kb

Tencent (700 HK) | Company Update Summary

Core Content Overview

This report provides an analysis of Tencent's financial performance for 3Q21 and its outlook for the remainder of the year and future periods. Despite missing expectations, the report suggests that the underperformance is forgivable, with a focus on upcoming game momentum and the potential for gradual recovery in the advertising segment. The overall outlook remains positive, and the stock is maintained at a BUY rating with a Target Price of HK$640.

Main Points and Key Information

3Q21 Performance

• Revenue: RMB142.4bn, up 13.5% YoY, slightly below consensus and estimates.
• Non-GAAP Net Profit: RMB31.8bn, down 2% YoY, with margins in line.
• Segment Analysis:
  • Games & FBS: Performance largely in line with expectations.
  • Ads & Social Network: Underperformed, with ads growth at +5% YoY (7% below estimate), affected by macroeconomic softness and regulatory pressures.
• Stock Reaction: Negative in the short term, but the report suggests this is temporary.

4Q21E Outlook

• Games Momentum: Expected to drive growth, with domestic games up +5% YoY and international games +20% YoY.
• LoLM Impact: Initial success with LoLM is expected to boost performance, with a first monthly grossing of RMB1.5bn.
• Ads Recovery: Anticipated to be gradual, with 4Q21E likely to remain weak due to ongoing uncertainties (e.g., PIPL regulations).

FY22E & FY23E Outlook

• Earnings Revisions: Earnings have been trimmed by 1–9% to reflect a more conservative outlook.
• Target Price (TP): Maintained at HK$640, corresponding to a 34x FY22E P/E.
• Growth Expectations: Revenue growth is expected to slow, with 14.1% YoY in FY22E and 14.5% YoY in FY23E.

Financial Highlights

• Revenue Trends: Steady growth in FY19A–FY21E, with FY21E revenue at RMB564,776mn.
• Net Profit: Declined in FY21E to RMB127,989mn, but adjusted net profit is expected to rise.
• Earnings Per Share (EPS): Adjusted EPS is expected to grow from RMB13.3 in FY21E to RMB18.1 in FY23E.

Key Ratios

• Operating Margin: Maintained at 30.5%–30.7% in FY21E–FY22E.
• Adj. Net Margin: Slightly declined in FY21E to 22.7%, expected to improve in subsequent years.
• P/E Ratio: At 29.2x in FY21E, decreasing to 25.2x in FY22E.
• P/B Ratio: At 4.7x in FY21E, decreasing to 3.6x in FY23E.

Shareholding Structure

• Naspers: Holds 28.9% of shares.
• Ma Huateng: Holds 7.4% of shares.
• Vanguard: Holds 2.5% of shares.

Stock Performance

• 1-Month Return: +4.8% (Absolute), -1.0% (Relative).
• 3-Month Return: +9.2% (Absolute), +6.9% (Relative).
• 6-Month Return: -22.1% (Absolute), -12.0% (Relative).
• 12-Month Price Performance: Chart provided in the report, indicating historical volatility.

Conclusion

Despite the underperformance in 3Q21, Tencent's fundamentals remain strong, with a focus on the gaming segment as a key growth driver. The report maintains a BUY rating and suggests that the stock is well-positioned for a recovery in the second half of 2022. While advertising is expected to remain under pressure in the short term, the long-term outlook for the company is positive.