How to quantify the value of Tencent's investment map? Sort out that the market value of listed companies holding shares may reach the level of 500 billion dollars. With its strong financial capabilities and WeChat portal, Tencent has built a huge investment map through continuous foreign investment.
Caliber 1: According to Tencent's financial data, we added total estimates that the investment volume of its major listed companies and unlisted companies increased year-on-year in 24Q1; Tencent's investment in listed companies was 356.8 billion yuan in 24Q1, up 6.6% year on year, and achieved growth for two consecutive quarters.
Caliber 2: Looking at various open markets, we have sorted out 24M6 that Tencent holds shares in a total of 67 listed companies, with a total market value of 528.1 billion yuan, which has achieved significant year-on-year growth. Tencent's US shares hold a market value of about 421.2 billion yuan, accounting for about 80%. The market value increased by about 52% over the same period last year. US stocks are the market where Tencent holds the most shares, and 23M6-24M6 has created a major increase in Tencent's investment. The market value of Tencent A shares was about RMB 15.1 billion, down about 34% year on year; the market value of Hong Kong stock holdings was about RMB 69.8 billion, up about 1% year on year.
The market recognition of Tencent's shareholding value is expected to gradually increase, which will help: 1) If macro and liquidity expectations improve, the market is expected to give an optimistic valuation to Tencent's investment sector. According to our two estimates, if holding companies with 50% market value are conservatively discounted, it is expected to generate an increase of about 178.4-264 billion yuan on Tencent's valuation. 2) According to both measures, the value of Tencent's foreign investment has increased, which is expected to gradually increase the market's confidence in Tencent's investment. 3) With the cash benefits obtained by reducing holdings, Tencent is expected to support the promotion of its repurchase and dividend plans for a long time and increase the return on the company's shareholders. For example, 23M6-24M6 Tencent reduced its holdings in some listed companies (such as NIO, Nubank, etc.) to cash out.
Financial tracking: Steady increases in positions to the south, high repurchases by Tencent, and the impact of the majority shareholders' holdings reduction is still low. Tencent's repurchase plan exceeds HK$100 billion in 24, and the majority shareholder repurchase plan anticipates a 24-year repurchase of HK$54.1 billion. 1) 24Q2 Tencent continued to repurchase an average of HK$1 billion on each trading day (excluding the quiet period), totaling HK$37.5 billion, yoy +206%. 2) The amount of the 24Q2 repurchase plan for Prosus and Naspers, the majority shareholders of Tencent, increased month-on-month, but remained low. We estimate that the current discount rate for Prosus holding Tencent has not been significantly reduced, and Prosus may maintain its reduced holdings in Tencent.
Fundamental points: Monetization of high-margin businesses such as WeChat video accounts is expected to continue to boost profit-side performance.
1q24non-IFRS net profit of 50.265 billion yuan, yoy +54%; net profit margin of 31.5%, yoy+9.8pcts; gross profit margin of 52.6%, yoy+7.2pcts, healthy growth in user participation in the WeChat ecosystem. Video accounts & applets & games generate high gross profit margins and revenue with a platform economy effect, which is expected to drive the profit side to continue to release elasticity. The total usage time of 24Q1 video account is yoy+ 80%, the MAU for WeChat games in '24 is over 0.5 billion, the average daily usage time per person is 60 minutes, and the 24Q1 video game turnover is +30%. The game sector is expected to enter a continuous product cycle. In 24Q1, the local market turnover yoy +34%, “DNF Mobile Games” performed well in 24Q2, and products such as “Wang Zhe Rongyao Dawn” and “Operation Delta” are expected to gradually release growth in performance. Deferred revenue of 24Q1 was 106.1 billion yuan, yoy +9.2%, reaching a record high.
Profit forecast, valuation and rating: 1Q24 The company's non-IFRS net profit increased significantly. As high-margin business growth continues to advance, the company's 24-26 non-IFRS net profit forecast was raised to 211.55/236.47/255.42 billion yuan (+13.3%/+12.4/ +11.3% compared to the previous forecast). The current price corresponds to 24-26 non-IFRS PE 15 in line with product cycle recovery and cost reduction and efficiency, respectively /14/13 times, maintaining the “buy” rating and maintaining the target price of HK$430.
Risk warning: Risk of regulatory uncertainty, macroeconomic risk, game performance falling short of expectations, increased competition.