Founder Securities released a research report stating that it maintains a "strong buy" rating for Tencent Holdings (00700), and expects that its Non-IFRS net income attributable to shareholders will increase by 30.8%, 14.5%, and 16.0% respectively from 2024 to 2026, reaching 206.2 billion yuan, 236.1 billion yuan, and 273.9 billion yuan, with a target price of HKD 474. The bank expects Tencent's Q2 24 revenue to be 163 billion yuan (+9.2% YoY), with gaming revenue of 48.8 billion yuan (+9.6% YoY). It is also expected that the Non-IFRS net income attributable to shareholders will be 48.9 billion yuan, a year-on-year increase of 29%; gross margin of 52.7%, and Non-IFRS net profit margin of 30.1%.

The main viewpoints of Founder Securities are as follows:

King of Glory and PUBG have returned to growth, with Q2 game revenue expected to increase by 9.6%.

1) Domestic games: the bank expects Tencent's domestic game market revenue to increase by 8% YoY to 34.4 billion yuan, mainly due to the flagship products King of Glory and Peace Elite benefiting from the new business pace and game content design improvements. Revenue has been recovering YoY since March 2024, and the new game Dungeon and Warrior: Origin has been steadily ranked second on the iOS bestseller list since its launch on 5/21/2024 (topped for 37 days), with estimated first-month revenue of over 5 billion yuan and first-12-month revenue of over 20 billion yuan. 2) Overseas games: It is expected that the revenue in 24Q2 will increase by 14% YoY to 14.4 billion yuan. Subsidiary Supercell's Brawl Stars has revitalized through operation iteration and achieved rapid growth in DAU and revenue. It has also been launched in more than 90 countries and regions. It is expected that further products such as open-world racing mobile game Need for Speed: Assembly and new game of King of Glory IP Star of Dawn will be launched in the summer, and the game trend is expected to accelerate in the second half of the year.

Advertising and commercial payments may have a slower growth rate due to the decline in consumer spending, with expected Q2 growth rates of 15% and 6.7%, respectively. The bank expects that although video optimization and algorithm optimization continue to promote advertising efficiency growth, the growth momentum of advertising business will slow down due to factors such as the high base of e-commerce last year (according to Xingtu data, the total sales of comprehensive e-commerce platforms during the 2024 618 period reached 571.7 billion yuan, a year-on-year decrease of 6.9%), and expects Q2 24 advertising revenue to increase by 15% YoY. As for financial technology, the bank expects that the payment business will be affected by the slowdown in offline spending since Q1 24, but at the same time, currency wealth management and other businesses are expected to grow rapidly, and financial technology and enterprise services revenue are expected to increase by 6.7% YoY in Q2 24.

yes

The bank expects advertising and commercial payment businesses to have slower growth rates due to the decline in consumer spending, with expected Q2 growth rates of 15% and 6.7%, respectively. Although video optimization and algorithm optimization continue to promote advertising efficiency growth, the growth momentum of advertising business will slow down due to factors such as the high base of e-commerce last year (according to Xingtu data, the total sales of comprehensive e-commerce platforms during the 2024 618 period reached 571.7 billion yuan, a year-on-year decrease of 6.9%), and expects Q2 24 advertising revenue to increase by 15% YoY. As for financial technology, the bank expects that the payment business will be affected by the slowdown in offline spending since Q1 24, but at the same time, currency wealth management and other businesses are expected to grow rapidly, and financial technology and enterprise services revenue are expected to increase by 6.7% YoY in Q2 24.