Core views:
Tencent released its 2024Q1 quarterly report: In 24Q1, Tencent's revenue reached 159.5 billion yuan, YoY +6.34%, QoQ +2.76%, vs. consistent expectations (Bloomberg, same below) of 158.8 billion yuan. Net profit for 24Q1 was $41.9 billion, YoY +62% /QoQ +55%, vs. consistent expectations of $34.5 billion (over 21%). NongAAP's net profit to mother reached $50.265 billion, YoY +54.48%, QoQ +17.77%, vs. consistent expectations of 43 billion yuan (over 16.90%).
The game distribution industry has recovered, revenue resilience is strong, advertising performance has exceeded expectations, and the Sprout business has driven a significant increase in operating leverage. (1) Game revenue for 24Q1 was 48.1 billion yuan, YoY -0.41%, QoQ +17.6%, which is slightly better than the agreed estimate of 47.3 billion yuan. The decline in domestic games was more moderate than we expected, and overseas game performance in March also exceeded expectations, driving the acceleration of turnover growth.
(2) The 24Q1 social network revenue was 35.0 billion yuan, YoY -2%, and QoQ +8%, in line with consistent expectations. Revenue from music, long videos, and WeChat mini games generated incremental revenue, but the decline in businesses such as live music streaming and game streaming affected overall performance. (3) 24Q1 advertising revenue reached 26.5 billion yuan, YoY +26%, QoQ -11%, vs. consistent expectations of 24.8 billion yuan. Driven by the growth of video accounts, applets, public accounts, and search ads. (4) 24Q1 financial and corporate services revenue reached $52.3 billion, YoY +7%, QoQ -4%, vs. the agreed forecast of $55.1 billion.
Profit forecasting and investment advice: In the past, the company focused on investments in three fields, namely short videos, overseas games, and SaaS, and has begun to see initial results. “Sprouts” have thrived and contributed to high-quality profit sources. We will continue to invest in AI technology in the future to consolidate long-term competitive barriers. We expect the company's revenue for 24-25 to be 6638 billion yuan and 729.2 billion yuan, an increase of 9.0%/9.9%. The adjusted net profit to mother is estimated to be RMB 228.1 billion in 1974, up 25.2% and 15.5% from the same period. Based on 24-year revenue and performance, the reasonable value is HK$508.58 per share based on SOTP. Maintain a “buy” rating.
Risk warning: Stricter regulations, stricter game version reviews, and the risk of being squeezed by short videos.