The company's recent situation
We were recently invited to participate in an offline survey at Tencent Tianmei Studio in Chengdu. The company invited the producer of “Wang Zhe Rongyao” to understand the current ideas and direction of Tencent's game development.
reviews
The success of “Wang Zhe Rongyao” has benefited from favorable weather and location, and the game itself is expected to build a long-term ecosystem with heavy snow and the team's dedicated investment. “Wang Zhe Rongyao” is one of the best games in Chinese mobile game history in the past ten years. Its core elements include economic acquisition, teamwork, and common goals (push the tower), etc., and these elements all fit perfectly with Tencent's gaming business's own ability points — the PvP model allows users to spontaneously construct endless “problems” to be solved, and fits into Tencent's social networking ecosystem. Therefore, we believe that compared to other games, “Wang Zhe Rongyao” has a longer life cycle due to spontaneous interaction among internal users, and the characteristics of the gameplay make its maintenance cost lower. The game has now been online for 8 years, and revenue is still steady. At the same time, the company said that as the leading game development team, it will continue to invest in building a long-term ecosystem for “Wang Zhe”, including: 1) strictly enforcing the Juvenile Protection Law and game industry regulatory policies to set a benchmark; 2) Actively thinking about how to make users happier and more fulfilled, and how to convey culture and emotions, including extensive use of AI and other technology to solve game design problems and enable game content generation; 3) Continue to build the “Wang Zhe” IP IP series of other games, e-sports industry, peripheral derivatives, animated movies, etc.; 4) “Credits” “The King” is powerful Ecologically going overseas, it is currently expanding in Brazil and will continue to expand in other core markets for the next 5 years.
Tencent Gaming is actively dealing with competition in the industry, and 2024 is still worth looking forward to. Since Q2 2023, Tencent's game growth rate has been relatively flat, causing the market to worry about the development of its gaming business in 2024. However, just as we can see from the “King” team, Tencent has a leading layout and deep thinking in the stock of top games, and we think its competitive barriers are high. At the same time, the company is actively seizing incremental opportunities. On 4Q23, Tencent officially launched “Yuanmeng Star” and NetEase's “Egg Party” to compete head-on in party games, and used methods such as original licensing, well-known IP linkage, and 1.4 billion yuan ecological incentive plan investment. According to data.ai, since the launch on December 15, as of January 1, 2024, “Yuanmeng Star” has accumulated 3.29 million iOS downloads, and iOS has accumulated 4.6 million US dollars in store revenue. Looking ahead, there are also domestic games such as “Bai Jing Corridor”, “Need for Speed Online Mobile”, and “Reverse Battle: The Future”, etc., and overseas games are actively promoting localization, making steady progress, and may also release inventory in the medium term. We believe that Tencent's game performance in 2024 is still worth looking forward to.
Profit forecasting and valuation
The profit forecast for 2023 and 2024 remains unchanged, maintaining the “outperforming industry” rating and the target price of HK$475 based on SOTP valuation, corresponding to 22.0x 2024e non-IFRS P/E, with 60% upside. Currently, the company trades at 13.7x 2024e non-IFRS P/E.
risks
Regulatory factors; game launches fell short of expectations; higher costs or fee rates than anticipated.