Zhitong Financial APP learned that Xiaomo released a research report that maintained Tencent's "overweight" rating of Tencent (00700). In the near future, the main share price driver is still investors' views on the mainland's Internet regulatory environment, and is expected to rise and fall in the next one or two quarters, but the company's profits may accelerate in 2022, and the regulatory environment will stabilize, with a target price of HK $640.
According to the report, Xiaomo held an investor meeting with Tencent (00700) management last week and believed that the regulatory risks faced by the company's online gaming business were controllable. it is also expected that the implementation of the personal Information Protection Law in the mainland will have less impact on the company than its advertising-focused peers. The bank quoted Tencent management as saying that it would balance the opening of the platform with the duties of the gatekeeper. At the same time, management said that opening up to more diversified services on other platforms would benefit Tencent's ecosystem, but the guiding principle was to balance the product and user experience. The company said it had opened its platform to BABA (09988)'s Taobao (Internet ticketing platform) and Box Horse (engaged in fresh food grocery business).
Xiaomo believes that the regulatory risks faced by Tencent's online gaming business are manageable, pointing out that the game revenue of underage users under the age of 18 accounts for about 6% of its mainland game revenue, and management says it is not too worried about losing its long-term attractiveness to young users. because the company provides a wide range of entertainment to attract young users over the age of 18 or under. In addition, with regard to the new focus of regulators on cracking down on illegal adult account trading, management says this is what the company has been advocating. The bank believes that a large number of monetization practices such as irrational gaming and tipping in live games may be subject to stricter regulation in the short term. In spite of this, Xiaomo still believes that Tencent is not obviously affected by the relevant monetization mechanism.
The bank predicts that Tencent's financial outlook will weaken in the second half of this year, but says its fundamentals are still healthy. In terms of games, although the delayed release of key games is detrimental to short-term revenue, the relevant content is basically ready, and key games have been approved for monetization; in terms of advertising, weak key advertising categories and tighter regulation may slow the company's revenue growth in the second half of the year, but Tencent's traffic and Wechat ecosystem are still strong.