Intelligence Realm Finance APP has learned that Huaxing Securities published a report stating that, switching to the 2025 forecast value, SOTP valuation, reiterating a "buy" rating on Tencent (00700) and raising the SOTP target price to HKD 520.00, maintaining revenue forecasts for online advertising, fintech, and enterprise services. During the 3Q24 period, the overall operation environment of the group remained stable, with growth in games driven by "Dungeon & Warrior Mobile Game", Forever Young Games, and deferred revenue balance, improving the predictability of game growth.

Main viewpoints of Huaxing Securities are as follows:

Games:

Maintain the forecast of a 13% / 9% year-on-year increase in Tencent's online games' revenue for the third/fourth quarters of 2024.

Local Games: The bank expects revenue growth to accelerate to a year-on-year increase of 12% (compared to -2% / +9% in the first/second quarters of 2024) driven by strong performance in Forever Young Games and continuous strong player payments in "Dungeon & Warrior Mobile Game". The recent release of "Delta Force" is considered a strong addition to the existing shooting game portfolio, focusing on escape shooting, multiplayer battlefields, and the upcoming storyline campaign mode. The bank expects local online game revenue to maintain double-digit growth in the next four quarters driven by steady performance in "Dungeon & Warrior Mobile Game", Forever Young Games, and the peak deferred revenue from 2Q24.

International Games: Supercell's classic game "Brawl Stars" continues to perform well, ranking 10th/8th in the US iOS revenue rankings in July/September (compared to 8th/7th in May/June). Considering the resurgence of "PUBG Mobile", the bank expects these games to drive international game revenue growth from a 3% / 9% year-on-year increase in the first/second quarters of 2024 to a 13% / 23% year-on-year increase in the third/fourth quarters of 2024.

Online advertising:

Maintain the forecast of 15% year-on-year growth in online advertising revenue for 3Q24, with social advertising revenue expected to increase by 16% year-on-year (unchanged), and media advertising revenue to increase by 6% year-on-year (lower than the previous 8%). According to the bank's research, products such as video advertisements will occupy a larger market share, thus the bank continues to predict that Tencent's advertising growth rate will exceed the market average. The bank's downward revision of the forecast for media advertising is mainly due to the lack of hit TV series on Tencent Video in 3Q24. The total advertising revenue is expected to maintain an 18% year-on-year growth in 2024.

Cni xiangmi lake fintech index and enterprise services:

Maintain the forecast of 3% year-on-year growth in revenue for this sector in 3Q24. The bank expects the revenue growth rates for cni xiangmi lake fintech index/enterprise services to be 1.5%/11% year-on-year respectively. The bank anticipates that enterprise services will maintain healthy revenue growth and profit margin performance.

Profitability:

The bank largely maintains the forecast for adjusted operating margin in 3Q24/2024 at 36.9%/36.1%, with year-on-year increases of approximately 350 basis points/460 basis points respectively, and maintains the forecast for adjusted net margin for the same period at 35.9%/34.0%, with year-on-year increases of approximately 680 basis points/810 basis points respectively. The bank predicts that optimizing the revenue structure towards high-margin businesses and focusing on ROI-driven operational expenditure will help Tencent improve its net income. In terms of shareholder returns, as of October 9th this year, Tencent has repurchased shares worth about 91 billion Hong Kong dollars (the target set in 4Q23 is to repurchase over 100 billion Hong Kong dollars by 2024).

Risk warning: Slow monetization, low investment returns.