Core ideas:

WeChat stores drive supply and demand through social endowments, and the WeChat marketplace provides conversion and repurchases, which is expected to form a unique model of lightweight social e-commerce. The WeChat Mini Program has built up a solid merchant base and trading ecosystem. In the past, merchants and users mainly completed e-commerce transactions in the applet; in 2022, WeChat launched a small video store to explore e-commerce in the short video space; in 2024, WeChat's small store was established as the core of the WeChat e-commerce scenario, promoting transactions through WeChat's global traffic, and continuously improving infrastructure and product capabilities. We believe that WeChat is not modeled after the success path of other platforms; in the past, it has continuously sought a business model suitable for its own social scene. According to Tencent's financial report, the GMV of the applet has reached 2 trillion yuan (24Q3), including the scale of e-commerce transactions. While converting existing applet merchants, WeChat stores are attracting more merchants to enter through social gameplay, generating growth.

Open up more traffic resources to WeChat stores, combined with sending gifts, which is expected to accelerate the penetration of merchants and users.

Merchants that set up WeChat stores prioritize showing WeChat stores (including product cards displayed) in search results. Changes in search rankings, as well as the continuous improvement and rich features of WeChat stores, such as a private delivery system linked to an account, or attracting merchants to try to open small stores. Functions unique to small stores, such as gift-giving, combined with Spring Festival operations or driving gift-giving, spawned unique demand scenarios and product supply.

Profit forecasting and investment advice. We believe that today's WeChat is not doing e-commerce from scratch. On the basis of mini-program merchants, WeChat's small stores are an upgrade of infrastructure and service systems, which is expected to enhance WeChat's e-commerce market. We maintain the profit forecast and reasonable value estimate from the previous report. Revenue for 24-25 is expected to reach 657.9 billion yuan and 713 billion yuan, up 8.0%/8.4%. The adjusted net profit to mother is estimated to be 221.8 and 244.4 billion yuan, up 45.0% and 10.2%. Based on 24-year revenue and performance, the reasonable value is HK$485.21 per share based on SOTP. Maintain a “buy” rating.

Risk warning. Stricter regulations, stricter game version reviews, and the risk of being squeezed by short videos.