20220324-招银国际-腾讯控股-00700.HK-Looking_into_2H22E_recovery_5页_814kb

Tencent (700 HK) Summary

Core Content

Tencent, a leading Chinese technology company, reported its financial results for the fourth quarter of 2021 (4Q21) and provided forecasts for the upcoming financial year (FY22E). The company's performance was impacted by weak advertising revenue and margin pressure, but it is expected to recover in the second half of 2022 (2H22E). The report highlights key financial metrics, including revenue, net income, and earnings per share (EPS), and outlines the analysts' outlook on the company's future performance.

Main Points

• 4Q21 Performance:

  • Revenue increased by 8% YoY to RMB144.2 billion, slightly below the consensus estimate.
  • Non-GAAP net profit declined by 25% YoY to RMB24.9 billion, also below the consensus.
  • The decline in profit was primarily due to soft gross margin (GPM) and revenue sharing with Video Accounts, as well as higher content costs.

• Game Revenue:

  • Game revenue grew by 9% YoY in 4Q21, with international games showing stronger growth at 34% YoY.
  • Domestic game revenue increased by 1% YoY, largely in line with expectations.
  • The report notes that the potential resumption of game licenses and a solid product cycle could be catalysts for future growth.

• Advertising Revenue:

  • Advertising revenue declined by 13% YoY in 4Q21, which was in line with the analyst's estimate.
  • The decline was attributed to soft macroeconomic conditions and tightening regulations, particularly in the education, gaming, and insurance sectors.
  • Social and media ads were also down, with -10% / -25% YoY respectively.
  • The report forecasts continued softness in Q1 2022 (1Q22E) but expects a recovery in the second half of the year (2H22E) due to an easy base and macroeconomic improvement.

• Earnings Forecast:

  • The company's revenue is expected to grow at 10.4% YoY in FY22E, and 14.6% YoY in FY23E.
  • Net income is forecasted to increase by 5.7% YoY in FY22E and 17.5% YoY in FY23E.
  • Adjusted EPS is projected to rise to RMB13.61 in FY22E, RMB15.95 in FY23E, and RMB18.68 in FY24E.
  • The report forecasts a flat advertising revenue in FY22E, while game revenue is expected to grow by 7% YoY.

• Valuation:

  • The target price for Tencent is set at HK$550, down from HK$590.
  • The current stock price is HK$389, with a potential upside of 41.4%.
  • The analyst maintains a BUY rating, citing a trough in Q1 2022 and expected recovery in 2H22E, along with already low market expectations and share buybacks.

Key Information

• Market Performance:

  • Market capitalization is HK$3.687 billion.
  • The stock has underperformed in the past 12 months, with a price performance of -13.6%.
  • The stock is currently trading at HK$389, with a 52-week high of HK$638.66 and a low of HK$297.0.

• Shareholding:

  • Naspers holds 28.81% of the shares.
  • Ma Huateng holds 7.38%.
  • Vanguard holds 2.12%.

• Financial Ratios:

  • Gross margin is expected to decrease slightly to 41.9% in FY22E.
  • Operating margin is projected to remain stable at 33.5%.
  • Net margin is forecasted to decrease to 21.2% in FY22E.
  • The company's ROE is expected to decline to 14.2% in FY22E.

• Cash Flow:

  • Operating cash flow is expected to be RMB288,383 million in FY22E.
  • Capital expenditures (Capex) are forecasted to be RMB35,940 million.
  • The company maintains a strong cash position, with RMB595,492 million in cash at the end of FY22E.

Analyst Ratings

• BUY: Stock with potential return of over 15% over the next 12 months.
• HOLD: Stock with potential return of +15% to -10% over the next 12 months.
• SELL: Stock with potential loss of over 10% over the next 12 months.
• NOT RATED: Stock not rated by CMBIGM.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Analyst Certification

• The analyst certifies that the views expressed in the report accurately reflect their personal views.
• The analyst has not engaged in trading or dealing in the stock covered in the report within 30 days prior to the report's release.
• The analyst is not affiliated with any of the Hong Kong listed companies covered in the report.
• CMBIGM has an investment banking relationship with the issuers covered in the report.

Important Disclosures

• The report contains information that may not be suitable for all investors.
• CMBIGM does not provide individually tailored investment advice.
• The information is based on publicly available and reliable data, but is not guaranteed.
• The report is for the use of intended recipients only and may not be reproduced or distributed without prior written consent.
• The report is subject to change without notice.
• CMBIGM may issue other reports with different conclusions and recommendations.