1. Forecast of main financial indicators: We expect Tencent to achieve revenue of 159.3 billion yuan (YoY +6%, QoQ +3%) in 2024Q1, including 78.7 billion yuan (YoY -1%, QoQ +14%), online advertising business of 24.8 billion yuan (YoY +18%, QoQ -17%), and fintech and corporate services of 54.8 billion yuan (YoY +12%, QoQ +1%). Tencent's 2024Q1 sales expense ratio is expected to be 5.6%, general and administrative expenses ratio of 15.8%; NON-IFRS net profit of 44 billion yuan, up 35% year on year and 3% month on month; gross profit margin of 49%, NON-IFRS operating margin of 34%, and NON-IFRS net interest rate of 28%. (They are all in RMB currency units)
2. Gaming: Revenue is expected to drop 1% year-on-year in 2024Q1. Affected by the high base for the same period last year, leading domestic games are under pressure in the short term. “League of Legends Mobile Game”, “Battle of the Golden Shovel”, “Dark Zone Breakthrough”, and the overseas game “Wild Brawl” are expected to drive the game business back to growth.
3. Social networks: Revenue is expected to drop 1% year-on-year in 2024Q1. Tencent Video continues to output high-quality content in online dramas and variety shows, and the overall performance of leading networks is steady; video channels actively optimize the user consumer experience and accelerate the pace of e-commerce development. In March, four video channels brought in total sales exceeding 100 million yuan; Tencent Music helps local cultural tourism development, actively explores AI music creation technology, and hosts the peak of QQ music.
4. Advertising business: It is expected that 2024Q1 revenue will increase 18% year-on-year, and video advertising revenue will continue to increase significantly. In 2024, it is expected to be driven by internal circulation e-commerce, while driving a further increase in the gross margin of the advertising business; launch a new marketing science system - Tencent Advertising Ruyi, which provides data products for marketing decisions and scientific measurement, and also launch a one-stop AI advertising creative platform covering implementation scenarios such as Wensheng Map, TuSen Map, and product background synthesis to reduce advertising costs and efficiency.
5. Fintech and corporate services: It is expected that 2024Q1 revenue will increase 12% year on year, payment business will grow steadily, and Tenpay will increase its capital to 15.3 billion yuan; the cloud business continues to recover year on year. Tencent Cloud AIGC cloud storage solutions have recently been launched. Video e-commerce GMV has further grown, and delivery technology service fees will contribute a marginal increase.
The profit forecast and investment rating take into account the continuous increase in the contribution and cost reduction efficiency of high-margin businesses such as video ads and e-commerce. We adjusted the company's profit forecast. The company's 2024-2026 revenue is 6584/7269/797.9 billion yuan, non-IFRS net profit is 1842/2016/222.2 billion yuan, corresponding non-IFRS EPS is 19.50/21.35/23.53 yuan respectively, and the corresponding non-IFRS PE is 14/13/12X, respectively, according to SOTP As a valuation method, we gave Tencent's businesses a total target market value of RMB 3.27 trillion in 2024, corresponding to a target price of 365 yuan/HK$401, maintaining a “buy” rating.
Risks indicate the risk of slowing the growth rate of active users, risk of new game approval process, risk of video content supervision, risk of rapid increase in content costs, risk of rapid increase in channel costs, risk of competition risk, antitrust risk, financial policy change risk, investment risk, valuation adjustment risk, etc.