On August 7, on the grounds that WeChat might capture users' personal information and proprietary information in the United States, the United States required that 45 days after the issuance of the orderProhibit anyone from conducting any transactions related to Wechat with Tencent and his companyThe news can be seen as an extension of the US "net plan" announced by US Secretary of State Pompeo on August 5.

After the news was released, it worried some investors. On August 7, Tencent's share price fell 5.04%.

Guoxin point of view:

Judging from the current information, the impact of the US "WeChat ban" on Tencent's social ecology and income is very small; moreover, judging from the existing information, it is less likely that the United States will restrict the listing of Wechat on China's App Store and prohibit Tencent from issuing games independently in the United States.

In the event of extreme circumstances, PUBG Mobile's operations in the United States may be affected, and we estimate that the impact on Tencent's 2020-2022 Non GAAP net profit is 1.1%, 1.0% and 0.8%, respectively.

The current share price performance reflects market concerns about the unknown, and the company's long-term logic has not been affected. We maintain our previous profit forecast and expect Tencent's net profit under Non GAAP from 2020 to 2022 to be 1214, 1498 and 180.5 billion yuan respectively, maintaining the target price of HK $520-566, corresponding to 30-33 times PE in 2021, and continuing to maintain the "buy" rating.

What is the impact of the United States banning WeChat on Tencent?

Users: in September 2019, the number of WeChat active users in the United States accounted for only 0.13% of the total Wechat users in the same period. In September 2019, WeChat had 1.48 million users in the United States, accounting for only 0.13% of the combined users of Wechat and WeChat in the same period, according to Statista.

American social products are mainly Facebook Inc Messager, Snapchat and WhatsApp, and the head effect is more significant. From this we judge that even if the United States completely bans the use and trading of WeChat in the United States, the impact on Tencent's social ecology is also very limited.

Revenue side: we estimate that non-game income in the United States accounts for only 0.4% of Tencent's total income in 2019, even if WeChat withdraws from the US market, it will have little impact on the ecosystem and profit side.

It is worth noting that the original purpose of this injunction is to "prohibit transactions related to Wechat with Tencent Company", not to prohibit the use of WeChat in the United States.

This means that overseas companies' advertising on Wechat and individual users' use of WeChat for payment may be prohibited, and Wechat's commercialization abroad will be affected, and the US move may force WeChat to withdraw from the US market voluntarily.

In 2019, Tencent's total overseas income was 16.7 billion yuan, and we estimated that overseas game revenue exceeded 14 billion, that is, overseas non-game revenue, including advertising, was about 2.7 billion yuan. Tencent's total income in 2019 was 377.3 billion yuan. Assuming that 60% of overseas non-game revenue comes from the United States, the United States non-game revenue accounts for only 0.4% of the company's total revenue in 2019.In the short term, the impact on the company's profits is very small.

Will this incident affect the development of Tencent games in the United States?

At the news level, according to Los Angeles Times reporter Sam Dean, White House officials said the presidential decree is limited to Wechat and Wechat-related companies, and does not involve gaming companies owned by Tencent. Therefore, Riot's "League of Legends" and Epic's "Fortnite" are not affected for the time being.

Logically, the game does not meet the crackdown standards of the US "Operation net" and this presidential decree.In the "net Action", the US side claimed that it would remove the untrusted Chinese App from the mobile app store that might threaten the privacy of the American people, spread the virus, and guide public opinion.

1) in terms of collecting user information, Tencent's games went to the United States and were jointly released with the help of invested partners. Tencent currently plays the role of a "mobile game developer". Only "PUBG Mobile" is dominated by Tencent, while "CODM" is issued by Activision Blizzard, and "League of Legends" is issued by Riot Games.

In terms of buying volume, Chinese game companies rely heavily on local app stores for distribution, as well as marketing by Facebook Inc and Google. When logging in, users often use the account system of American companies such as Facebook Inc, Apple Inc, Google Play, etc., which meansTencent rarely has access to the information of local users.

2) in terms of guiding public opinion, "localization" is one of the principles pursued by most Chinese games going out to sea. Tencent's head games "PUBG Mobile" and "CODM" in the United States are overseas IP, which cannot play the role of cultural export and guiding public opinion. Therefore, we judge that the United States lacks the motivation to ban Tencent's games.

In extreme cases, what is the impact of the US ban on Tencent's game performance?

From the Los Angeles Times reporter Sam Dean reported that the current Tencent in the United States investment in the game company Riot Games and Epic Games operation will not be affected.

However, the statement mentioned "US." Mobile app stores (American App Store) does not clearly define whether the "net Action" is aimed at "American area App Store" or "American App Store". In the case of ambiguous boundaries and unclear standardsThe possibility that the spread will be expanded in the future cannot be ruled out.For example, Tencent is prohibited from issuing games independently in the United States.

If such an extreme situation occursWe speculate that Tencent can still legally operate in the US market by looking for agents for US game publishers and setting up overseas distributors in the US or other countries, but Tencent's share of the game may be reduced.

In extreme cases, the current head-out game "PUBG Mobile" may be affected. According to our model, "PUBG Mobile" accounted for only 1% of Tencent's total income and profit in 2020-2022.

In our existing profit forecast, Tencent's game is mainly composed of "PUBG Mobile", "CODM", "LOL" mobile games, "Dragon Raja" and other high-quality content, with a strong head effect. Among them, the release of "CODM" in the United States is completed by Activision Blizzard, and the release of "LOL" mobile games will be completed by the American company Riot Games. "Dragon Raja" is mainly aimed at Japan. In extreme cases, the head game that may be affected is "PUBG Mobile".

We estimate that the overseas revenue of "PUBG Mobile" is about US $12, 13, and 1.3 billion in 2020-2022. Assuming that the game accounts for 60% of revenue in the United States, the impact on Tencent's operating income in 2020-2022 is 1.0%, 0.9%, 0.7%, and 1.1%, 1.0%, 0.8%, respectively.

In China's App Store, will the download and use of Wechat be affected?

We think this possibility is relatively low. If Wechat is removed from the App Store in China, Apple Inc may be the first to be affected.As we all know, Wechat plays an irreplaceable role in Chinese acquaintances. As of 2020Q1, Wechat and WeChat, there are more than 1.2 billion combined active users, most of whom are from China, while Apple Inc's mobile phone is more replaceable.

According to Questmobile data, 2020H1 and Apple Inc mobile phones account for only 21.6% of the monthly active users in all categories of domestic smart terminals. In 2019, Apple Inc's income in China accounted for about US $43.7 billion, accounting for about 17% of his total income, for the vast majority of consumersThe value of social relationship chain precipitated by Wechat far exceeds that of Apple Inc's mobile phone. If Wechat is banned on App Store in China, we speculate that most users will give up using Apple Inc's mobile phone. In this case, Apple Inc may be hit earlier than Tencent.

At present, it has little impact on Tencent, and it has not yet affected the logic of his long-term growth. There is no need to panic excessively and continue to maintain the "buy" rating.

Through the above analysis, we can find that the actual impact of the current US "WeChat ban" on Tencent's social ecology and income is very small; judging from the existing information, it is less likely that the United States will restrict the listing of Wechat on China's App Store and prohibit Tencent from issuing games independently in the United States.

Naturally, the definition of "transaction" in this ban is very vague, and the final interpretation of whether it violates the ban is in the hands of the US government, and we cannot rule out the possibility of further deterioration of the situation.

In the event of extreme circumstances, PUBG Mobile's operations in the United States may be affected. in pessimistic circumstances, the impact on Tencent's 2020-2022 Non GAAP net profit is expected to be 1.1%, 1.0%, 0.8%, respectively.

The company's long-term logic has not been affected, and the profit safety cushion is still rich enough. We maintain our previous profit forecast and expect Tencent's net profit under the Non GAAP from 2020 to 2022 to be 1214, 1498 and 180.5 billion yuan respectively, maintaining the target price of HK $520-566, corresponding to 30-33 times PE in 2021, and continuing to maintain the "buy" rating.

Risk Tips:

Policy risk; the risk of expanding the scope of restrictions on Tencent's game and investment business in the United States; the risk of Tencent's products being restricted in China; the risk caused by measurement errors.