The Zhitong Finance App learned that Anxin International released a research report saying that maintaining the “buy” rating of Tencent Holdings (00700), the target price is HK$490.6. Benefiting from the smooth progress of WeChat commercialization of high-quality revenue and the continuous upgrading of the AI advertising model, the company's profit margin level is expected to remain high. In 2024, Tencent's total revenue increased 6.3% year on year to 159.5 billion yuan, which is basically in line with market expectations. Gross margin increased 7.1 percentage points to 52.6% year on year, and adjusted net profit increased sharply by 54.5% year on year to 50.3 billion yuan, exceeding market expectations.

Anxin International's main views are as follows:

Game performance has been delayed, and Q2 growth can be expected

In 2024Q1, Tencent's value-added services revenue fell 0.9% year on year to 78.6 billion yuan. Among them, international game revenue increased 3% year over year to 13.6 billion yuan, and local game revenue fell 2% year on year to 34.5 billion yuan. In terms of game turnover, game traffic in the Q1 Tencent international market increased 34% year on year, and the domestic game market revenue recovery is growing to 3%. Due to deferred revenue, the Q2 game business can be expected to resume positive growth. Q1 Social network revenue fell 2% to 30.5 billion yuan, mainly due to the decline in revenue from live streaming music and game streaming services, which was partially offset by the increase in revenue from paid music and video video streaming services, and service fees for small game platforms.

The advertising business is the most prominent sector

In 2024Q1, the online advertising business grew 26% year over year to RMB 26.5 billion. It is the fastest growing business segment, mainly driven by the growth of WeChat video accounts, applets, public accounts, and search and search, driven by increased user participation and AI-driven advertising technology platforms. Advertising spending increased in all major industries except the automotive industry, with significant increases in advertising spending in the gaming, internet services, and consumer goods industries.

Fintech's business services are growing steadily

In 2024Q1, Tencent's fintech and corporate services revenue increased 7% year over year to RMB 52.3 billion. This was partly offset by a slowdown in offline consumer spending growth and a decrease in revenue due to strong revenue growth from financial services. At the same time, the increase in cloud service revenue and technical service fees for video account merchants drove enterprise services to achieve a year-on-year increase of more than ten points.

Video numbers are growing rapidly, and commercialization of the WeChat ecosystem is accelerating

The total video account user usage market increased by more than 80% year on year in 2024Q1. WeChat strengthened the video channel live streaming ecosystem by expanding product categories and encouraging more content creators to participate in live streaming; the total usage time of applet users increased by more than 20% year over year. Among them, the average number of daily uses of non-game applets achieved a double-digit percentage increase year over year, and mini game traffic increased 30% year over year.

Risk warning: Gaming business falls short of expectations; investment in new business development affects performance; negative risks of Internet regulatory policies, etc.