20230323-招银国际-腾讯控股-00700.HK-Steady_ship_and_aim_for_sustainable_growth_8页_1mb

Tencent (700 HK) Summary

Core Content and Key Information

Tencent reported its 4Q22 results, showing total revenue of RMB145bn, a 1% YoY increase, in line with estimates. FY22 total revenue declined by 1% YoY to RMB554.6bn. Non-IFRS net income for 4Q22 rose by 19% YoY to RMB29.7bn, slightly below the consensus estimate of RMB30.8/30.2bn. Full-year non-IFRS net income dropped by 7% YoY to RMB115.6bn in FY22. The company raised its FY23-24E non-IFRS net income forecast by 3-6%, citing recovery in high-margin ad business, improved GPM in ads and FBS, and better operating efficiency. The updated SOTP-derived target price is HK$455.0, up from HK$450.0, and the recommendation remains BUY.

Main Business Performance

• Domestic Games Revenue: Declined by 6% YoY to RMB27.9bn in 4Q22.
• International Games Revenue: Grew by 5% YoY (or 11% when excluding currency and one-off effects) to RMB13.9bn, driven by successful game launches such as NIKKE and Darktide.
• Online Ad Revenue: Grew by 15% YoY to RMB24.7bn, outperforming expectations. User time on Video Accounts tripled YoY and reached 1.2x that of Moments. Tencent plans to explore monetization opportunities like live streaming tipping and e-commerce in FY23.
• FBS (Fintech and Business Services): Revenue declined by 1% YoY in 4Q22 due to the impact of the pandemic and reduced loss-making activities in the cloud business. However, GPM improved by 6.4ppt YoY. Fintech revenue showed strong recovery in 1Q23, with YTD daily average commercial payment volume back to double-digit YoY growth. Cloud business aims for a more sustainable model in FY23.

Financial Highlights

• Overall GPM: Expanded by 2.5ppt YoY to 42.6% in 4Q22.
• S&M Expenses: Declined by 47% YoY to 4.2% of total revenue in 4Q22, down from 8.1% in 4Q21.
• Non-IFRS Net Income: Grew by 19% YoY in 4Q22.
• Revenue and Profit Forecasts:
  • FY23E: Revenue RMB615.4bn, Adjusted net profit RMB138.5bn.
  • FY24E: Revenue RMB669.0bn, Adjusted net profit RMB162.5bn.
  • FY25E: Revenue RMB721.2bn, Adjusted net profit RMB184.6bn.
• EPS (Adjusted):
  • FY23E: RMB14.31.
  • FY24E: RMB16.78.
  • FY25E: RMB19.06.
• Valuation Metrics:
  • P/S (2023E): 4.7x.
  • P/E (2023E): 19.6x.
  • Current Price: HK$347.20.
  • Target Price: HK$455.00.
  • Up/Downside: 31.0%.

Valuation Breakdown (SOTP)

1. Online Games: HK$184.0 per share, based on a 20x 2023E PE.
2. SNS Business: HK$29.3 per share, including Tencent Video (3.0x 2023E PS) and other membership services (2.0x 2023E PS).
3. Advertising Business: HK$39.6 per share, based on a 18x 2023E PE.
4. Fintech Business: HK$101.9 per share, based on a 5.0x 2023E PS, reflecting positive outlook on digital payment recovery.
5. Cloud Business: HK$23.5 per share, based on a 5.0x 2023E PS, with expectations of gaining market share and benefiting from SaaS growth.
6. Strategic Investments: HK$62.0 per share, based on market value and book value, with a 30% holding company discount.
7. Net Cash: HK$14.7 per share.

Peer Comparison

• Online Games:
  • NetEase: 20x 2023E PE.
  • Activision Blizzard: 22x 2023E PE.
  • Electronic Arts: 19x 2023E PE.
  • Take Two Interactive: 33x 2023E PE.
  • Average PE: 22x.
• Online Advertising:
  • Average PE: 18x.
• Online Video:
  • Average PS: 2.8x.
• Fintech:
  • Average PS: 2.6x.
• Cloud:
  • Average PS: 4.4x.

Business Forecasts and Valuation

• Revenue Growth:
  • FY23E: 11.0% YoY.
  • FY24E: 8.7% YoY.
  • FY25E: 7.8% YoY.
• Gross Margin:
  • FY23E: 43.7%.
  • FY24E: 44.5%.
  • FY25E: 45.5%.
• Adjusted Net Margin:
  • FY23E: 22.5%.
  • FY24E: 24.3%.
  • FY25E: 25.6%.
• Valuation of Core Business: HK$392.9 per share.
• Valuation of Investment: HK$62.0 per share.
• Total Valuation per Share: HK$455.0.

Financial Summary

• Income Statement:
  • Revenue: RMB615.381bn (FY23E), RMB669.040bn (FY24E), RMB721.216bn (FY25E).
  • Gross Profit: RMB268.8bn (FY23E), RMB298.0bn (FY24E), RMB327.8bn (FY25E).
  • Adjusted Net Profit: RMB138.5bn (FY23E), RMB162.5bn (FY24E), RMB184.6bn (FY25E).
• Balance Sheet:
  • Total Assets: RMB1,915.569bn (FY23E), RMB2,083.135bn (FY24E), RMB2,318.325bn (FY25E).
  • Total Liabilities: RMB730.798bn (FY23E), RMB747.106bn (FY24E), RMB811.871bn (FY25E).
  • Total Shareholders Equity: RMB1,113.546bn (FY23E), RMB1,264.395bn (FY24E), RMB1,434.361bn (FY25E).
• Cash Flow:
  • Net Cash from Operations: RMB227.085bn (FY23E), RMB271.050bn (FY24E), RMB280.599bn (FY25E).

Conclusion

Tencent's FY22 performance showed a slight decline in total revenue but a solid recovery in non-IFRS net income, driven by improved operating efficiency and the performance of high-margin ad and FBS businesses. The company has raised its forecasts for FY23-24E, indicating a positive outlook for growth. The updated SOTP-derived target price of HK$455.0 reflects the company's diverse business segments and strategic investments. Tencent is recommended to maintain a BUY position due to its strong earnings rebound potential and favorable valuation.