Tianfeng Securities released a research report, Tencent (00700) 3Q2024 revenue increased by +8% year-on-year, +4% quarter-on-quarter; gross margin increased by +16% year-on-year, +3% quarter-on-quarter; Non-IFRS operating profit increased by +19% year-on-year, +5% quarter-on-quarter; company's gross margin in 3Q2024 increased by 3.6 percentage points year-on-year, slightly decreased by 0.2 percentage points quarter-on-quarter. The company's operating expenses in 3Q2024 increased by +12% year-on-year, +5% quarter-on-quarter, slightly higher than the bank and media expectations, but the expense ratio remains relatively low. The company's revenue, gross profit, and operating profit at the business level are basically in line with the bank's and media's expectations, continuing the trend of Non-IFRS operating profit growth rate > gross profit growth rate > revenue growth rate.
In 3Q2024, the company's online games revenue increased by +13% year-on-year, basically in line with the bank's and media's expectations. Specifically, domestic game revenue increased by +14% year-on-year, slightly higher than the bank's expectations, driven by games including "Fearless Alliance," "Honor of Kings," "Peacekeeper Elite," and "Dungeon & Warrior: Origin"; overseas game revenue in 3Q2024 increased by +9% year-on-year (+11% calculated at fixed exchange rates), slightly lower than the bank's expectations. The growth rate of overseas game revenue significantly lagged behind the turnover growth rate, as some games experienced higher retention rates, leading the company to extend the revenue deferral period accordingly. Looking ahead, the bank expects the game revenue growth rate to accelerate in the fourth quarter. Continued focus on the operational pace of "Dungeon & Warrior: Origin," although Nexon's guidance for 4Q2024 China region revenue growth is relatively cautious, the company's management also stated at the earnings conference that the fourth quarter is expected to be a period of integration for "Dungeon & Warrior: Origin," with significant content updates scheduled for Chinese New Year next year to improve user retention and monetization.
The bank stated that considering the maturity of the company's game layout system, the significant inventory space in video account advertising, the accelerated commercialization of WeChat search, and the expected growth in financial payment speed with the warming of macro demand, the bank has raised the forecasted Non-IFRS net income attributable to the mother for 2024-2026 to 228.1/264.9/294 billion yuan (previously forecasted as 217.8/251.7/278.6 billion yuan), with year-on-year growth rates of 45%/16%/11%, respectively. As of November 17, 2024, the company's stock price corresponds to forecasted PEs of 15x/12x/11x for 2024/2025/2026, with the 12-month media rolling forward PE being lower than the median of the past 5 years by 1.1 standard deviations, at the 11th percentile of historical values. Compared to the Nasdaq, the 12-month media forward PE is lower than the median of the past 5 years by 1.5 standard deviations, at the 8th percentile of historical values, indicating a relatively low valuation. The bank expects game growth to accelerate in the fourth quarter, with advertising and financial businesses benefiting from macroeconomic recovery, coupled with potential post-performance share repurchases, which will help improve valuation constraints. The bank maintains a "buy" rating.
