The Zhitong Finance App learned that Jefferies released a research report stating that it maintains the “buy” rating of Tencent Holdings (00700), with a target price of HK$475. The bank recently met with Tencent management after the results and came up with a number of key points.

The report's main points are as follows:

Tencent successfully revitalized the domestic and international online game market.

As demand for high-quality games continues to grow, the gaming industry is fiercely competitive. Tencent promotes successful cultural sharing and fosters interaction among studios in different regions. In addition, Tencent also pursues performance-based assessments and adjusts team structures when necessary. Plus, content upgrades can extend the life of existing games.

The advertising market share continues to grow, and the potential of video accounts (VA) has yet to be unlocked.

Time spent on video accounts (VA) is more than double that of Moments (Moments). The former increased by more than 80% compared to the same period last year. When it comes to pricing, the uniqueness of the friend zone makes it stand out from the competition with video accounts. Video accounts still have a low click-through rate of around 3%, which means there is plenty of room for future growth compared to peers. Additionally, investing in artificial intelligence (AI) can increase click-through rates through better ad targeting.

Offline payment transactions have slowed, leading to a slowdown in fintech revenue.

Judging from payment trends, offline payments are affected by macroeconomic uncertainty, while online payments remain healthy. In the first quarter of 2024, overall offline payment sales once again showed positive year-on-year growth. The reason for the slowdown in payment revenue is a decline in transaction amounts rather than transaction volume.

Commitment to a share repurchase plan.

Tencent believes that profit growth and fair value of investment portfolios are important for valuation. Working capital expenses are expected to reach around 7% of revenue in 2024, with more than half of these expenses related to GPU procurement. As far as employee costs are concerned, the growth rate is expected to be lower than the increase in the number of employees.