20171116-交银国际证券-腾讯控股-00700.HK-3Q17_results_beat_on_games_and_payment__further_TP_upgrade_5页_923kb

Tencent (700 HK) Summary

Core Content

Tencent, a leading Chinese internet company, reported strong third-quarter 2017 (3Q17) results that exceeded both consensus and previous expectations. The company's performance was driven by robust growth in its games and payment businesses, with a notable increase in revenue and non-GAAP net profit. The target price for Tencent was upgraded from HK$430 to HK$442, reflecting optimism about its future growth potential.

Financial Highlights

• Revenue (RMB m): Increased to RMB65.2bn, up 15% QoQ and 61% YoY, surpassing the estimate of RMB61bn.
• Non-GAAP EPS (HK$): RMB1.79, up 4% YoY and 4% QoQ, higher than the consensus of RMB1.73.
• Net Profit (RMB m): RMB18.047bn, up 67% YoY.
• Non-GAAP Net Profit (RMB m): RMB17.07bn, up 45% YoY.
• Gross Profit Margin: 49%, down 1ppt QoQ and 5ppts YoY, primarily due to higher revenue-sharing costs and lower-margin business contributions.
• Non-GAAP Operating Margin: 33%, down 2ppts QoQ and 4ppts YoY, attributed to increased S&M and R&D expenses.

Key Business Segments

• Mobile Games: Revenue increased by 84% YoY to RMB18.2bn, driven by the success of "Honor of Kings" and new titles like "Contra Return" and "XuanYuan Mobile".
• Video Subscriptions: The subscription base for Tencent Video doubled YoY to 43m, becoming the top-grossing entertainment app on China iOS.
• Social Networks: Revenue reached RMB15bn, with growth from digital content services, especially video subscriptions.
• Online Advertising: Revenue came to RMB11bn (17% of total revenue), up 48% YoY, with contributions from Weixin, YYB, and online video.
• Payment and Cloud Services: Both segments saw triple-digit YoY revenue growth, with payment volume increasing 280% YoY due to integrated services for merchants.

Valuation and Outlook

• Target Price (TP): HK$442, up from HK$430.
• Valuation Adjustment: Based on 45x 2018E P/E, the TP was lifted due to higher-than-expected 3Q17 results.
• Revenue and Net Profit Forecasts:
  • Revenue for 2017E and 2018E were lifted by 2.5% and 2.7% respectively.
  • Net profit for 2017E and 2018E were raised by 4.3% and 0.4%.
• Margin Trends: Expected to continue a downtrend due to ongoing investment in content, payment, and cloud services.

Stock Performance

• Last Closing Price: HK$383
• Upside: +16%
• Stock Data:
  • 52-week high: HK$398.60
  • 52-week low: HK$179.6
  • Market Cap: HK$3.638 trillion
  • Issued Shares: 9,498.92 million
  • 1-month change: +9.68%
  • YTD change: +101.90%
  • 50-day MA: HK$349.91
  • 200-day MA: HK$281.21
  • 14-day RSI: 73.52

Analyst Rating

• Rating: Buy
• Reasoning: The stock's total return is expected to exceed that of the corresponding industry over the next 12 months.
• Trading Buy: Indicates very attractive absolute return in the near term.

Analyst Team

• Internet Sector: Yuan Ma (Ph.D.), Gu Xinyu (Connie, CPA), Sun Mengqi (Brandy), Zhou Zhe (Gigi), Shan Ying
• Research Team Contacts:
  • Head of Research: Hao HONG, CFA
  • Deputy Head of Research: Geoffrey CHENG, CFA
  • Analysts:
    • Yuan Ma, PhD: (86) 10 8800 9788 - 8039
    • Gu Xinyu (Connie), CPA: (86) 10 8800 9788 - 8045
    • Sun Mengqi (Brandy): (86) 10 8800 9788 - 8048
    • Zhou Zhe (Gigi): (86) 10 8800 9788 - 8041
    • Shan Ying: (86) 10 8800 9788 - 8044

Disclaimer

• This report is confidential and intended for private circulation only.
• No part of the report may be copied, reproduced, or redistributed without prior written consent.
• The views and recommendations are those of the analysts and do not necessarily reflect those of BOCOM International Securities Ltd.
• The company may have business relationships with BOCOM International and its affiliates, which may create conflicts of interest.