20180816-兴业金融证券-腾讯控股-00700.HK-Short-Term_Headwinds_But_Key_Strengths_Remain_10页_462kb

Tencent Summary

Core Content and Key Insights

Tencent, a leading internet conglomerate in China, continues to demonstrate strong core strengths despite facing short-term challenges. The report highlights the following key points:

• Short-Term Headwinds: Tencent's online gaming business is experiencing pressure due to the delay in monetisation approvals for its PUBG mobile games. Additionally, China's regulators have frozen online game licensing approvals, which is expected to negatively impact the industry and Tencent's revenue in the short term.
• Valuation Update: The target price for Tencent was reduced to HKD450 from HKD527, with a 34% upside based on a 35x 2019F P/E ratio. The valuation methodology was updated from SOP to P/E, reflecting the market's shift in focus to growth figures.
• Competitive Advantages: Tencent maintains a strong position in social traffic, online game development, and distribution capabilities. Its Weixin platform has a highly sticky user base, and the company is focusing on monetisation through mini-programmes.
• Monetisation Diversification: To offset the impact of unmonetised PUBG games, Tencent is diversifying its growth drivers by focusing on the overseas market and launching games with higher ARPU.
• Financial Outlook: Non-GAAP earnings forecasts were cut by 6%, 7%, and 9% for 2018F-2020F due to lower online gaming revenue and profit. The projected non-GAAP earnings CAGR for 2017-2020F is 27%, down from 31%.

Key Financials

Share Data

Shareholders

Key Drivers and Risks

Key Drivers:

• Social Advertising: Leveraging its massive user base for advertising opportunities.
• Mobile Games: Continued focus on mobile gaming as a major revenue stream.
• Monetisation from Weixin: Expanding monetisation via mini-programmes and other features.

Key Risks:

• Weaker Advertising Demand: Economic conditions may reduce advertising spending.
• Competition in Online Video and Games: Intense competition from emerging platforms.
• Regulatory Risks: Potential policy changes in China's internet sector, including content control.

SWOT Analysis

Strengths:

• Operates China's largest online instant messaging (IM) applications, QQ and Weixin.
• Leverages its large IM user base to expand into games, advertising, and e-commerce.

Weaknesses:

• Too reliant on game revenue and profit.

Opportunities:

• Online and offline integration in various verticals.
• Internet finance.
• Social advertising.

Recommendation and Analyst

• Analyst: Yujie Li
• Recommendation: Buy (Maintained)
• Target Price: HKD450
• Current Price: HKD336
• Market Cap: USD407,581m
• Bloomberg Ticker: 700 HK

Financial Exhibits

• Income Statement: Shows revenue growth and gross profit trends.
• Cash Flow: Highlights changes in working capital and operating cash flows.
• Balance Sheet: Demonstrates the company's financial position and debt levels.
• Key Metrics: Includes revenue growth, gross margin, and net profit margin.

Conclusion

Tencent's core strengths in social traffic, online games, and distribution remain strong despite short-term challenges. The company is actively diversifying its revenue streams and focusing on monetisation through its Weixin platform. While regulatory pressures and competition pose risks, Tencent's long-term growth potential is still significant, justifying the Buy recommendation with a revised target price.