Gaming: We maintain our 1Q24 forecast of a 4% year-on-year decline in online game revenue (with a 6% year-on-year decline in the Chinese market and a 2% year-on-year increase in the international market), but we raised our forecast for online game revenue to 3% year-on-year growth for the full year 2024 (previously 2%). Domestic market: We noticed a change in the monetization pace of Tencent's “Wang Zhe Rongyao” and “Peace Elite” in 1Q24 (that is, revenue concentration declined during the Spring Festival holiday period), while “Battle of the Golden Shovel” and “League of Legends” mobile games maintained strong performance. With the mobile games “Dungeons and Warriors” (scheduled to be released in 2Q24), “Need for Speed” (to be released this summer), and “Dawn of the Stars”, we now forecast a 2% year-on-year growth rate of game revenue in the domestic market in 2024 (previously 1%). International market: We believe that the strong sales performance of “Wild Battle” may take several quarters to be reflected in revenue, while the “Call of Duty” mobile game is expected to maintain stable performance even after the release of a competitive game. We maintain our forecast of a 5% year-over-year increase in game revenue in the international market in 2024.

Online advertising: We maintain our forecast of 18%/18% year-on-year growth in online advertising revenue for 1Q24/ 2024, with social/media advertising revenue growth of 19%/6% for the first quarter and the whole year. Despite recent fluctuations in the macro environment, considering that Tencent has always shown resilience and achieved a higher growth rate than its peers with high-quality traffic channels and advertising assets, we believe that Tencent is expected to maintain healthy performance. At the same time, Tencent's ongoing advertising platform upgrade (using more AI-driven infrastructure) has not only increased the click-through rate of video accounts, but also increased the click-through rate of other ad inventories. Management said at the 4Q23 results meeting that the click-through rate (1% in 3Q23) has increased by 100% over the past 18 months on some of the most important ad inventories. In terms of net profit, we expect the advertising segment to continue to shift to higher-margin revenue sources to support further growth in gross margin.

Fintech and enterprise services: We maintain our 1Q24/ 2024 segment revenue growth forecast of 11%/12% year over year. The forecast for fintech services revenue growth of 12%/13% year over year remains unchanged, while reducing the cloud business revenue growth rate to 7%/10%. We expect the cloud business to maintain healthy growth and outperform the market. Considering the cloud business's strategy of focusing on high-quality revenue sources, we still believe that improved profit margins are expected to drive up the division's gross margin.

Profitability: We maintain our 1Q24/ 2024 non-IFRS operating margin forecast of 34.1%/35.6% (year-on-year increase of ~380/410 basis points) and non-IFRS net margin of 23.9%/28.7% (year-on-year increase ~ 420/ 280 basis points). We believe that shifting the revenue structure to high-margin revenue sources will help support Tencent's increase in profitability. Shareholder return: As of April 12, Tencent's share repurchases during the year were approximately HK$23 billion (4Q23 announced a target repurchase target of over HK$100 billion in 2024).

Maintain a “buy” rating and SOTP target price of HK$430.00. Risk warning: Macro weakness, slow monetization, low return on investment.