20240122-招银国际-腾讯控股-00700.HK-Weixin_monetization_shows_continuous_progression_9页_1mb

Tencent (700 HK) Summary

Core Content and Key Insights

Tencent is expected to continue delivering quality earnings growth in 4Q23E and 2024E, driven by operating leverage, improved competitive positions in core business segments, and incremental contributions from Weixin ecosystem innovations. The company's non-IFRS net profit margin (NPM) is projected to rise from 21% in FY22 to 28% in FY25E, primarily due to a favorable revenue mix shift towards higher-margin segments such as Weixin Video Account, mini games, and live streaming e-commerce, alongside cost control measures.

Despite potential slowdowns in domestic games revenue growth due to seasonality and the impact of new game regulatory policies, Tencent's long-term leadership in the domestic games market and its capability to expand into the overseas games market remain strong. The market has overreacted to these regulatory impacts, and Tencent's current valuation (13x FY24E PE) offers an attractive risk-reward ratio, given its solid earnings growth outlook (FY23-25E CAGR of 20%).

The target price has been fine-tuned to HK$458.5 (previously HK$465.0), with a 69.1% upside from the current price of HK$271.20. The summary maintains a "BUY" rating.

Revenue and Earnings Outlook

4Q23E Revenue Projections

• Total revenue: RMB156.1bn (+8% YoY)
• SNS: flat
• Games: +2% YoY (domestic games decelerate to +3% YoY)
• Ads: +15% YoY
• FBS: +15% YoY

FY23E–FY25E Revenue and Earnings Trends

YoY Growth

• Revenue: +10% (FY23E), +9% (FY24E), +8% (FY25E)
• Adjusted Net Profit: +34% (FY23E), +19% (FY24E), +9% (FY25E)
• EPS: +34% (FY23E), +19% (FY24E), +9% (FY25E)

Gross Margin and Net Margin

• Gross margin: 47.8% (FY23E), 48.8% (FY24E), 49.0% (FY25E)
• Adjusted net margin: 25.4% (FY23E), 27.9% (FY24E), 28.3% (FY25E)

Weixin Ecosystem Highlights

• VA (Video Account): Live streaming e-commerce GMV tripled YoY in 2023, with orders and product supply up by 244% and 300% respectively.
• Mini Games: Total commercial value grew over 50% YoY in 2023; DAUs remained stable at over 400mn, with over 50% of users not previously playing Tencent games.
• E-commerce Infrastructure: Tencent is expected to continue improving e-commerce infrastructure, supporting merchant service providers, and enhancing user experience.

SOTP Valuation Breakdown

The SOTP-derived target price of HK$458.5 is based on the following components:

1. Online Games: HK$183.1 (based on 19x 2024E PE)
2. SNS Business: HK$19.5 (includes Tencent Video at 2.5x 2024E PS and other membership services at 2.0x 2024E PS)
3. Online Advertising: HK$58.1 (based on 16x 2024E PE)
4. Fintech Business: HK$107.8 (based on 5.0x 2024E PS, at a premium to peer average)
5. Cloud Business: HK$19.0 (based on 4.0x 2024E PS, at a discount to industry average)
6. Strategic Investments: HK$64.3 (based on current market value of listed investments and book value of unlisted investments, with a 30% holding company discount)

Peer Comparison

Online Games

Online Advertising

Valuation Metrics

• Market Cap: HK$2,567,314.8 million
• Average 3-Month Turnover: HK$6,421.5 million
• 52-Week High/Low: HK$415.00 / HK$271.20
• Total Issued Shares: 9,466.5 million

Share Performance

Strategic Investment Valuation

Financial Summary

Income Statement Highlights

• Revenue: RMB609.9bn (FY23E), RMB662.7bn (FY24E), RMB714.9bn (FY25E)
• Adjusted Net Profit: RMB155.0bn (FY23E), RMB185.1bn (FY24E), RMB202.1bn (FY25E)
• Adjusted EPS: RMB16.0 (FY23E), RMB19.1 (FY24E), RMB20.9 (FY25E)

Balance Sheet Highlights

• Total Assets: RMB1,595.4bn (FY23E), RMB1,769.9bn (FY24E), RMB1,961.7bn (FY25E)
• Total Liabilities: RMB700.4bn (FY23E), RMB735.7bn (FY24E), RMB774.3bn (FY25E)
• Total Shareholders Equity: RMB830.6bn (FY23E), RMB966.2bn (FY24E), RMB1,115.3bn (FY25E)

Cash Flow Highlights

• Net Cash from Operations: RMB209.999bn (FY23E), RMB235.189bn (FY24E), RMB264.503bn (FY25E)
• Net Cash from Investing: -RMB123.677bn (FY23E), -RMB168.305bn (FY24E), -RMB157.733bn (FY25E)
• Net Borrowings: RMB7,647mn (FY23E), RMB12,002mn (FY24E), RMB12,360mn (FY25E)