Introduction to this report:
24Q2 non-IFRS net profit exceeded expectations, advertising games were resilient, and joint venture investment returns increased. Investment points:
Advertisements and games are resilient enough, and are expected to continue to grow at a high rate throughout the year, maintaining an “gain” rating. Looking ahead, advertising and gaming will continue to grow, Jinke's corporate service revenue structure has been optimized, and joint ventures have continued to release profits. The company's 2024-2025 non-IFRS net profit forecast was raised to 217.4 billion yuan and 241.1 billion yuan (previous value was 196.2 billion yuan, 221.9 billion yuan). The current price corresponds to 14.7x and 13.2x PE, and the target price is HK$458, corresponding to 18x and 16xPE.
Revenue growth in the second quarter was steady, and profit growth exceeded expectations. The 24Q2 company achieved revenue of 161.1 billion yuan, +8% year over year, which is basically in line with expectations; net profit from non-IFRS was 57.3 billion yuan, +53% year over year, which greatly exceeded expectations, mainly due to the return of deferred income tax from overseas subsidiaries in 23Q2, which led to a reduction in income tax. 24Q2 income tax was 10.2 billion yuan, or -9% year over year. In terms of profitability, the 24Q2 gross profit margin was 53.3%, up 0.7 pct from month to month, slightly exceeding expectations, mainly due to the increase in gross margin of the VAS and FBS businesses slightly exceeding expectations, of 57.1% and 47.6%, respectively. Expenses increased slightly, with S&M expenses and G&A expenses accounting for 5.7% and 9.9%, respectively. Joint venture investment income (non-IFRS) reached 9.9 billion yuan, an increase of 6 billion yuan over the same period last year.
The recovery of domestic games has exceeded expectations, and the growth rate of international game traffic has significantly exceeded the revenue growth rate.
24Q2's value-added service revenue was 78.8 billion yuan, or +6% year over year. Among them, the game business recovered steadily. Local and international games achieved revenue of 34.6 billion yuan and 13.9 billion yuan respectively, all up 9% year over year, mainly due to the outstanding performance of “Fearless Contract”, “Dungeons and Warriors: Origins”, and “PUBGMOBILE”; 24Q2 social networking revenue was 30.3 billion yuan, +2% year over year, showing steady performance. The number of paid accounts for value-added services was +12%, the combined MAU of WeChat and WeChat was +3%, and the number of Tencent Video subscription members was +13%.
Video accounts drive strong advertising growth, and weak consumption has led to a slowdown in FBS growth. 24Q2 advertising revenue was 29.9 billion yuan, +19% year over year, mainly driven by the revenue growth of video accounts and long videos. Video channel advertising revenue increased by more than 80% year over year. In 24Q2, Jinke's corporate services revenue was 50.4 billion yuan, and the growth rate slowed to 4%. Mainly due to weak consumption, commercial payments slowed, and fintech service revenue grew by a low single digit; corporate service revenue increased by more than ten percentage points over the same period last year, benefiting from the increase in technical service fees for cloud service and video channel merchants.
Risk warning: Consumption recovery falls short of expectations; regulations are getting stricter; commercialization of video channels falls short of expectations