20180815-招商证券_香港_-腾讯控股-00700.HK-Q2_1st_take__across-the-board_softness_esp_mobile_game_5页_561kb

Tencent (700 HK) Q2 2018 Summary

Core Content Overview

This report provides an analysis of Tencent's Q2 2018 financial performance and strategic developments, highlighting key areas of focus and market sentiment.

Financial Performance

Revenue Growth

• Revenue: RMB 73,675 million (RMB 73,528 million in 1Q18), representing a 30% YoY increase and 0% QoQ growth.
• Non-GAAP Net Profit: RMB 19,716 million (RMB 19,181 million in 1Q18), a 20% YoY increase and 3% QoQ growth.

Segment Performance

• VAS (Value-Added Services): RMB 17,496 million (RMB 15,962 million in 1Q18), up 81% YoY and 10% QoQ.
• Online Gaming: RMB 25,202 million (RMB 28,778 million in 1Q18), a 6% YoY increase and -12% QoQ decline.
• Mobile Gaming: RMB 17,600 million (RMB 21,700 million in 1Q18), a 19% YoY decrease and -19% QoQ decline, worse than the market expectation.
• Online Advertising: RMB 14,110 million (RMB 10,689 million in 1Q18), up 39% YoY and -14% QoQ.
• Others: RMB 17,496 million (RMB 9,654 million in 1Q18), up 81% YoY and 10% QoQ.

Margin Analysis

• Gross Margin: 46.8% (down 3.6pp QoQ and 3.3pp YoY), due to sales mix shift and rising costs.
• Non-GAAP Operating Margin: 30.2% (down 5.2pp YoY and 4.2pp QoQ).
• Non-GAAP Net Margin: 26.8% (down 2.2pp YoY and 1.4pp QoQ).

Strategic Focus Areas

1. Game License Approval: The approval process remains uncertain, with no clear timeline for resuming. Selected channels may use a "green channel" to monetize pre-approved games.
2. PUBG Monetization: The mobile version of PUBG has caused a time cannibalization effect, impacting revenue growth. However, the game has been successful overseas.
3. Mini-program Status: Continued focus on mini-programs to enhance WeChat's ecosystem.
4. Short-form Video Progress: Development of short-form video services is ongoing, with potential for growth.

Market Sentiment and Investment Rating

• Investment Rating: BUY, with a target price under review.
• Forward Earnings: Revisit at <25x forward earnings due to lowered expectations and weak sentiment.
• Market Performance: Tencent shares showed negative returns in the past 12 months, with a 12.5% increase in the last month.

Key Data

• 52-week range (HK$): 309.5–475.6
• Market Cap (US$ bn): 407
• Avg. Daily Volume (mn): 24.4
• FY18E Non-GAAP diluted EPS (RMB): 8.9
• Shareholding Structure:
  • Naspers Ltd: 31.1%
  • Ma Hua Teng: 8.6%
  • JPMorgan Chase & Co: 4.1%
  • No. of shares outstanding (mn): 9,522
  • Free float: 41.9%

Outlook and Analysis

• PUBG Monetization: Despite challenges in China, Tencent is planning to launch higher ARPPU (Average Revenue Per Paying User) games to mitigate revenue weakness.
• Fortnite Launch: The PC version has passed regulatory approval and is in the process of green channel approval, with positive beta testing feedback.
• Non-game Growth: Ads and other non-game segments are experiencing growth, although at a slower pace than previously expected.

Industry and Company Ratings

• Industry Rating: OVERWEIGHT – Expect the sector to outperform the market over the next 12 months.
• Company Rating: BUY – Expect the stock to generate 10%+ return over the next 12 months.

Analyst and Regulatory Disclosures

• The analysts certify that the views expressed in the report reflect their personal opinions.
• The document is subject to important disclosures and is not intended for general public use.
• It is for the use of Relevant Persons as defined by UK and Hong Kong regulations and is not available to the general public in the People's Republic of China (excluding Hong Kong, Macau, and Taiwan), Japan, or Canada.