Since mid-September, $TENCENT (00700.HK)$There has been a strong rebound, and the stock price once approached HK$500. Despite a slight retreat in recent times, the year-to-date increase is still as high as 45%, and the stock price is also holding above HK$400.

After the Hong Kong stock market closed on November 13 Beijing time, Tencent is about to release its 2024 third-quarter report.

The market generally expects that in Q3, Tencent is expected to achieve revenue of 167.746 billion yuan, an 8.49% year-on-year increase. The expected EPS is 4.76 yuan, a 26.78% year-on-year increase.

Currently, the average institutional target price is at HK$477, with the highest target price at HK$559.

It is worth noting that there may be some expectations in the market for Tencent at present. As of November 7, the net inflow of funds from the south has been buying Tencent for 10 consecutive days, totaling approximately 3.977 billion Hong Kong dollars.

Additionally, Tencent has also been actively repurchasing its own shares with real money and silver this year. As of now, it has repurchased a total of 90.34 billion Hong Kong dollars (a total of 0.255 billion shares) and the repurchased shares have been canceled. It is expected to complete the annual repurchase amount target of 100 billion Hong Kong dollars by the end of the year, bringing about an additional 2% return for shareholders.

Specific segmented businesses.

Market expectations are generally that the company's game business product cycle will drive the acceleration of short-term game revenue growth, while video ads and inventory may support the resilience of mid-term ad revenue growth. The growth of fintech and enterprise service business revenue is expected to gradually recover with the macro environment. The company's high gross margin incremental business has laid the foundation for a continuous increase in mid-term gross margin. In addition, under a relatively stable competitive landscape, cautious expense management can be maintained, and the profit growth ability is relatively obvious.

• Value-added service business.

According to Bloomberg's consensus forecast, the value-added services are expected to generate revenue of 82.71 billion yuan, a year-on-year increase of 9.19%. Among them, game revenue is 51.439 billion yuan, with domestic game revenue at 36.983 billion yuan and international game revenue at 14.989 billion yuan; social network revenue is 30.907 billion yuan.

According to Sensor Tower/Qimai Data, Q3 gaming business revenue has maintained rapid growth, with domestic gaming revenue expected to increase by 29% to 32.8 billion yuan year-on-year; brokerage analysis indicates a potential 13% year-on-year growth in domestic gaming revenue. Among them, the new game 'DNF Mobile' has contributed significantly to the increase. The total revenue in Q3 is close to 9 billion yuan (around 7 billion yuan in Q2), with the impact of deferred revenue recognition expected to be more significant between Q3 and Q4, driving Tencent's games to achieve accelerated growth in the second half of the year.

As for PC gaming, 'Fearless Agreement' in the domestic market has shown strong year-on-year performance, and the dual-end launch of 'Delta Force' on September 26 also brought incremental contributions.

On the other hand, Q3 overseas gaming business revenue increased by 27% to 8 billion yuan year-on-year, significantly slower than the growth rates of 33% and 47% in Q1 and Q2, respectively. It is expected that Q3 overseas gaming revenue will grow by 15%. Supercell's 'Brawl Stars' continues to perform strongly, with revenue expected to reach 1.74 billion yuan; due to a longer overseas deferred revenue cycle, incremental contributions are expected to extend until 2025.

• On buyback: As of June 30 2024, Tencent had repurchased a total of 0.15473 billion shares at a total cost of approximately HKD 52.3 billion (excluding expenses). The repurchased shares have since been cancelled. The buyback aims to create long-term shareholder value.

According to Bloomberg's consensus expectations, the revenue of the online advertising business is expected to be 29.762 billion yuan, a year-on-year increase of 15.71%, with the gross margin increasing to 55.9%. Mainly due to the continued healthy growth of video traffic, which has a high gross margin, while mini-program advertising shows strong growth, and AI technology platforms enhance advertising effectiveness; however, pressures from industries like real estate and autos under macro influences have somewhat weighed on the advertising sector.

In this quarter, video traffic remains the largest source of incremental contribution, expected to contribute around 7.6 billion yuan, accounting for 26% of Tencent's advertising revenue; the loading rate of video advertising has slightly improved on a month-on-month basis, with a slight increase to 2.9% in Q3, and is expected to further increase in Q4.

Mini-program advertising benefits from the strong growth in advertising for mini-games and short dramas, maintaining a year-on-year growth rate of over 25% in Q3.

In recent times, WeChat advertising has focused on supporting short video industry advertising. In terms of resource allocation, the area originally accessible by actively searching for 'short dramas' through WeChat's 'Search' feature has now been significantly moved to the forefront of the mini-program page; policy-wise, the WeChat Advertising Assistant announced starting from October 1st, limited-time incentive activities will be opened for 'Entertainment-Short Dramas' and 'Entertainment-Online Novels' mini-programs.

• Fintech and Enterprise Service Business.

According to Bloomberg's consensus expectations, the revenue from financial technology and enterprise services business is expected to be 54.055 billion yuan, a year-on-year increase of 3.86%.

Looking into specifics, the growth rate of payment business has slowed down compared to the first half of the year due to macro and consumer impacts. Integration of Alipay into WeChat Payment is expected to bring incremental payment revenue, with a potential increase in gross margin, while services like financial management continue to show healthy growth.

On September 27th, Taobao announced the official integration of WeChat Payment. According to brokerage calculations, the average revenue fee rate for online commercial payments through WeChat Payment is approximately 0.6%. Taobao's FY2027 GMV is expected to be 9.9 trillion yuan. Assuming that WeChat Payment's share within Taobao rises to 10-20%, there is long-term potential to generate an additional income of 59-11.8 billion yuan.

It is expected that the AUM (personal customer assets) of the financial products within the year will achieve a growth of over 15%, driving the financial business to maintain good growth. The steady progress of microloan businesses such as WeChat Pay will also lead to an improvement in the profit structure of the fintech sector.

For enterprise service ports, the cloud business is expected to maintain steady growth. The commission increase of Video Accounts is expected to drive double-digit growth for enterprise services overall. It is estimated that the GMV of Video Accounts in Q3 will exceed 170 billion yuan, with a payment caliber of about 80 billion yuan, corresponding to commission income of approximately 1.6 billion yuan.

• Gross margin

The overall gross margin is expected to be 53.3%, basically flat compared to the previous period, with a 3.9% year-on-year growth. This is mainly due to the continuous increase in the proportion of high-margin incremental businesses.

• Monthly active users of the main apps

The combined monthly active users of WeChat and WeChat are expected to reach 1.368 billion person-times, a slight decrease of 0.003 billion person-times from Q2; the monthly active users of QQ on mobile terminals reach 0.571 billion person-times, remaining stable compared to Q2; the registered users of fee-based value-added services reach 0.264 billion person-times.

Click to make an appointment:Tencent's 2024 Q3 performance live broadcast (real-time translation)

Editor/ping