The Zhitong Finance App learned that Tianfeng Securities released a research report stating that it maintained the “buy” rating of Tencent Holdings (00700) and raised the 2024-2026 forecast non-IFRS net profit to mother to 204.7 billion yuan, 235.6 billion yuan, and 264.8 billion yuan, with a target price of HK$476. The growth of the company's game business showed a clear upward trend. The increase in gross margin continued to exceed market expectations, and market profit expectations entered an upward trajectory. The bank expects that there is still potential for further improvement in the future. In the medium to long term, the development of AI technology is actively deployed. The diversified product matrix responds to a broad range of potential application combinations, and technological progress is expected to become an important growth multiplier in the medium to long term.

According to the report, 1Q2024 showed a clear upward trend in game growth and an increase in gross margin that continued to exceed expectations, and market profit expectations entered an upward revision channel. As of 2024/5/25, after the announcement of the company's 1Q2024 results, the agency unanimously predicted that the 2024/2025 non-IFRS net profit would increase by 122/10.9 billion yuan (+7%/+5%) from the average value in the first 30 days of results to 1968/221 billion yuan, implying that the non-IFRS net profit for the second to fourth quarter of 2024 would increase by about 4.9 billion yuan. Looking ahead, the bank believes that there is still potential for further improvement in market profit expectations.

1) The bank believes that the current market's expected gross margin may not fully reflect the favorable impact of changes in revenue structure. Currently, institutions agree that gross margin will rise to 52.7% in 2024, which is a limited increase compared to the 1Q2024 level (52.6%). However, judging from the past few quarters, there is strong marginal momentum behind changes in revenue structure to increase gross margin. New sources of growth, including video advertising & e-commerce, mini-games, and value-added financial services, still have plenty of room for growth in the medium term.

2) The bank believes that there is potential for further improvement in game growth expectations. On the one hand, “Dungeons and Warriors: Origins”, which was launched recently, has an excellent ranking on the iOS bestseller list, and its annual sales performance has more than exceeded expectations. On the other hand, the excellent performance of “Wild Battle” drove the 1Q2024 overseas game turnover to +34%. Since April, its iOS ranking in major markets has further improved compared to the first quarter, and Supercell's new game “Squadbusters” will soon be launched globally. The bank predicts that Tencent's overseas game revenue will be +14% year over year in 2024. Currently, the agency expects overseas game revenue to be +11% year over year in 2024, or it does not fully reflect the trend of accelerating overseas game growth.