Domestic games and marketing services performed well, maintaining a “buy” rating

The company achieved operating income of 487.8 billion yuan (+7% YoY), net profit to mother of 142.7 billion yuan (+62% YoY), and non-IFRS net profit of 167.4 billion yuan (YoY +46%) in the first three quarters of 2024. 2024Q3 achieved operating income of 167.2 billion yuan (+8% YoY), net profit of 53.2 billion yuan (YoY +47%), and non-IFRS net profit of 59.8 billion yuan (YoY +33%). 2024Q3's value-added service business revenue was 82.7 billion yuan (+9% YoY), with game revenue of 37.3 billion yuan (YoY +14%), game revenue in the international market of 14.5 billion yuan (+9% YoY), and social networking revenue of 30.9 billion yuan (+4% YoY), mainly due to the strong performance of games such as “Fearless Contract”, “DNF Mobile”, “PUBG MOBILE”, and “Wild Brawl”. The revenue from the marketing service business was 30 billion yuan (+17% compared to the same period), mainly due to strong demand for video accounts, mini-programs, and WeChat search ads.

Revenue from the fintech and corporate services business was $53.1 billion (+2% year over year), mainly due to the increase in financial services revenue, cloud services, and merchant technical service fees. Based on the company's performance, we raised our profit forecast. The company's net profit for 2024-2026 is estimated to be 1930/2169/2363 (previous value was 1567/1873/2051) billion yuan, corresponding EPS was 20.8/23.4/25.5 yuan, respectively, and the current stock price corresponding PE is 17.9/15.9/14.6 times, respectively. We are optimistic that the commercialization of new games and the WeChat ecosystem will continue to drive the company's performance growth and maintain a “buy” rating.

High-quality revenue growth continues to drive the company's profitability

The gross margin of the 2024Q3 company was 53% (+4pct year over year), mainly due to good growth in domestic game revenue, video accounts, and high-margin revenue such as WeChat Search. Furthermore, under non-IFRS standards, the profit share of joint ventures and joint ventures reached 8.5 billion yuan (+77% year over year), and 2024Q3's non-IFRS net margin reached 35.8% (+6.7 pct year over year, +0.2 pct month over month), driven by increased gross margin and shared profit growth of joint ventures and joint ventures.

New games are expected to continue to drive growth, and the commercial monetization efficiency of the WeChat system will continue to improve

Since 2024, the company's new games have performed brilliantly. The “DNF” mobile game has remained number 1 on the iOS bestseller list for many days, “Operation Delta” ranked 18th on the iOS bestseller list, and “Pokémon Gathering” ranked 11th on the iOS bestseller list. It is expected that the launch of reserve games such as “Starbreak” and “Rainbow Six” will continue to contribute to the increase. The 2024Q3 applet GMV is over 2 trillion yuan, an increase of more than ten percentage points over the previous year. Based on the WeChat platform's huge user base of over 1.3 billion monthly active users, video accounts, applets, search and search are expected to continue to drive the company's performance growth.

Risk warning: The launch time or performance of new games falls short of expectations, the commercialization process of video accounts falls short of expectations, etc.