Profit growth is expected to be steady in 24Q1. 24Q1 is expected to achieve revenue of 156.2 billion yuan, YoY +4.2%, and QoQ +0.6%. NonGaap's net profit to mother was 39.3 billion yuan, YoY +20.8%, and QoQ -7.9%. The steady growth of advertising and financial enterprise service businesses is driving high-quality profit growth.
(1) The 24Q1 game business is expected to increase revenue due to 23H2 turnover, but as product commercialization strategies are adjusted and new games are launched one after another, it will gradually recover in Q2, and 24H2 growth may accelerate. The 24Q1 game business revenue is estimated to be 44.9 billion yuan, YoY -7%, and QoQ +10%. Mainly considering that domestic games are pressured by 24Q1 deferred revenue due to the flow pressure of commercialization of leading games in 23H2, and overseas products also have a certain high product base affecting growth performance. With adjustments in the commercialization strategy of leading games and the launch of new games such as “Dungeon and Warrior Mobile Game” in 24Q2, the game will accelerate in the second half of the year. The 24Q1 sales performance of many leading overseas games also saw positive results after adjustments. (2) 24Q1 advertising and financial enterprise services are expected to grow steadily. It is estimated that 24Q1 advertising revenue will reach 25.8 billion yuan, YoY +22.9%, mainly considering video channel traffic and algorithm-driven continuation. Financial and corporate services revenue is expected to reach 55.6 billion yuan in Q1, YoY +14.1%. Among them, financial payment revenue is growing steadily, and corporate services are increasing due to video e-commerce service fees, etc.
Profit forecasting and investment advice. Core advertising and financial enterprise service businesses drive steady long-term profit growth momentum, increasing repurchases effectively boosting stock prices. Gaming may catalyze valuation in the second half of the year. We adjusted our revenue forecast for 24-25 to 663.7 billion yuan and 721.7 billion yuan, an increase of 9.0%/8.7%. The adjusted net profit to mother is estimated to be 182.6 billion yuan and 203.6 billion yuan, up 15.8% and 11.5% from the same period. The reasonable value calculated based on the SOTP method is HK$485.88 per share. Maintain a buy rating.
Risk warning. Stricter regulations, stricter game version reviews, and the risk of being squeezed by short videos.