1. Forecast of main financial indicators: We expect the company to achieve revenue of 163 billion yuan (YoY +9%) in 2024Q2, including 79.5 billion yuan (YoY +7%) for value-added services, 30.4 billion yuan (YoY +22%) for online advertising business, and 51.7 billion yuan (YoY +6%) for fintech and corporate services. The company is expected to have a gross profit margin of 51% (YOY+4pct) and gross profit of 83.4 billion yuan (YoY +18%); sales expenses ratio of 6.6%, general and administrative expenses ratio of 16%; NON-IFRS net profit of 50.4 billion yuan, an increase of 34% year over year; NON-IFRS operating margin 34% (YoY+3pct) and NON-IFRS net profit margin of 31% (YoY+6pct).
2. Gaming: Revenue is expected to increase 8% year-on-year in 2024Q2. The leading Evergreen game is stable. The launch performance of the new game “DNF Mobile Game” exceeds expectations. “Brawl in the Wild” by overseas Supercell has further increased month-on-month, and the new game “Burst Team” is performing well. Considering the delay in domestic and foreign game sales, it is expected that more revenue side effects will be reflected in 2024H2.
3. Social networks: Revenue is expected to increase 5% year-on-year in 2024Q2. Tencent Video continues to output high-quality content in online dramas and variety shows, which is expected to drive an increase in the number of paid members; Tencent Music creates the “industry's first” end-side AI to empower car-side music, and music users' payment habits gradually develop.
4. Advertising business: Revenue is expected to increase 22% year-on-year in 2024Q2, and video ads reached a new high in a single quarter, becoming the second largest source of advertising revenue after the circle of friends. Recent major updates on WeChat advertising expanded the customer acquisition channel to Tencent's global traffic, helping to improve the customer acquisition efficiency of video e-commerce advertisers. Applet advertising benefits from mini game and short drama advertising, and has maintained strong year-on-year growth.
5. Fintech and corporate services: Revenue is expected to increase 6% year on year in 2024Q2, and payment business performance is lackluster due to the macroeconomic environment; the mixed yuan model has been upgraded, the Yuanbao app is officially launched, and the AI-related business has become a new growth point for Tencent Cloud; the 618 e-commerce promotion has driven a significant year-on-year increase in video e-commerce GMV, and is expected to contribute a marginal increase in delivery technology service fees.
The profit forecast and investment rating take into account the strong growth in the company's game business, the continuous growth of advertising exceeding expectations, and the significant year-on-year increase in profit margins. We raised our profit expectations. We expect the company's FY2024-2026 revenue to be 673/754.8/830.6 billion yuan, respectively, and the NON-IFRS net profit to mother is 218.3/248.7/283.8 billion yuan. Corresponding to non-IFRS EPS is 23/27/30 yuan, corresponding to non-IFRS PE, respectively For 16/14/12X, according to the SOTP valuation method, we gave Tencent Holdings' businesses a total target market value of RMB 4.1 trillion and HK$4.4 trillion in 2024, corresponding to a target price of HK$489, maintaining a “buy” rating.
Risks indicate the risk of slowing down in the growth rate of active users, risk of new game approval process, risk of video content supervision, risk of rapid increase in content costs, risk of rapid increase in channel costs, risk of competition risk, antitrust risk, risk of financial policy changes, investment risk, risk of valuation adjustments, and expansion of video accounts and WeChat games falling short of expectations.