Tencent will report 2Q24 results on 14 August. Est. 9% YoY 2Q24 total revenue meets consensus, contributed by resilient 2% YoY social network, rejuvenated 8% YoY VAS online game, strong 24% YoY online ad and mixed 7% fintech & BS. GPM expands to 53.3% primarily due to revenue mix shift, above consensus. We deem Co.'s committed strategic executions across all business segments and progressive monetisations on various application scenarios are yielding sustainably high quality momentum. Maintain BUY and TP of HK$445.0.
Key Factors for Rating
Committed executions progress well. We deem Co.'s committed efforts to generate high quality revenue streams across all business segments are yielding fruits. For game, resilient evergreen game portfolios and launches of various new games across genres, terminals and geographies contribute grossing incremental. Effective channel management and ROI-prioritised stringent spending lift game profitability. For online ad, progressive monetisation of various integrated infrastructures and application scenarios empowered by AI with active user engagements generate sustainable high quality streams. For fintech & BS, user spending behaviour shift and video account eCommerce contribute high margin revenue. Thus, we maintain our 2024-2026E total revenue forecasts, with uplifted overseas game and online ad revenue estimations offsetting by fintech revenue cut. Raised GPM forecasts mainly contributed by online ad and fintech & BS offset our increased S&M assumptions, leading to unchanged 2024-2026E adj. OPM.
2Q24 preview: Rejuvenated online game and solid ad; Strong GPM. We model total revenue to grow 9% YoY to RMB162.6bn, in line with consensus. We estimate 5% YoY VAS revenue, supported by 2% YoY social network and 8% YoY online game. Strong mini-game, music and video segments continue to offset streaming cut from TME and Huya. We expect domestic games resume to 6% YoY on resilient or rejuvenated evergreen titles, contribution of DNFM considering deferral policy and cannablisation effects. Online ad continues solid momentum, with estimated revenue logging 24% YoY to RMB31bn, contributed by video account, mini program and various ad products. User spending behaviour pivoting away from offline consumption amid tepid macro continue weigh on fintech growth (est. 7% YoY/ -1% QoQ). Meanwhile, video account eCommerce grows robustly. GPM of 53.3%, above consensus contributed by high revenue streams mainly from online ad and fintech & BS services. Adj. EPADS of RMB5.00, in line with consensus.
Key Risks for Rating
Downside risks: 1) regulations on games, fintech, online ad, streaming, personal data, taxation, etc.; 2) intensified competition for key segments; 3) weaker- than-expected macro; 4) destructive investments; 5) accelerated share divestment from main shareholder.
Valuation
Maintain BUY and our SOTP TP of HK$445.0 based on our updated estimations with corresponding unchanged 2024E multiples assigned to each segments (15.0x PER for online game, 16.0x PER for online ad, 15.0x PER for fintech & BS, 5x PSR for cloud) and latest subsidiaries and investments' valuation.