The 2024Q1 earnings revenue side exceeded market expectations: 2024Q1 recorded revenue of RMB 159.5 billion, up 6% year on year and 2.8% month on month. The month-on-month increase stemmed from improvements in gross profit in advertising, fintech, and corporate services. Net profit from the mother was recorded at RMB 42.7 billion, up 62% year on year and 58% month on month. After deducting non-cash stock incentive costs and investment income, NongAap's net profit, which reflects its core business, recorded a net profit of RMB 50.3 billion, an increase of 54% over the previous year and an increase of 17.9% over the previous year.
Revenue from 2024Q1 value-added services recorded RMB 78.6 billion, a year-on-year decrease of 0.9%.
The total volume of gaming business recovered and increased in Q1: The 2024Q1 international market game business recorded RMB 13.6 billion, an increase of 3% over the previous year. The increase was mainly driven by the rise in popularity of Supercell's games (especially “Desolation in the Wild”) and the increase in “PUBG MOBILE” users and turnover. In 2024Q1, the domestic market recorded 34.5 billion yuan in game business, down 2% year on year. The decline was mainly due to deferred revenue. Games such as “King's Glory” and “Peace Elite” were affected by last year's high base, and revenue declined year over year, but most were offset by revenue contributions from recently released games (including “Fearless Contract” and “Ark of Destiny”) and strong growth in “The Battle of Gold”.
The advertising business is impressive: The 2024Q1 online advertising business recorded revenue of 26.5 billion yuan, an increase of 26% over the previous year, mainly driven by the growth of WeChat video accounts, apps, public accounts, and search and search. At the same time, the company increased user participation after upgrading the advertising infrastructure. Since then, advertising spending in all major industries except the automobile industry has increased. Among them, advertising spending in the gaming, internet services, and consumer goods industries has increased markedly, and more large-scale e-commerce platforms have increased their advertising spending budgets. Furthermore, Tencent and Douyin are also deepening cooperation, which plays a prominent role in traffic distribution and game operation. Furthermore, with the support of AI assistants, the company is expected to continue improving gross profit and unleash profit potential.
Increased growth rate of fintech and corporate services: 2024Q1 fintech and corporate services revenue recorded RMB 52.3 billion, an increase of 7% over the previous year. The increase was mainly due to a slowdown in offline consumer spending growth and a decrease in revenue from cash management services, as well as a strong increase in revenue from financial management services. In addition, corporate service revenue achieved a year-on-year growth rate of about 10 points, thanks to the increase in cloud service revenue and video number merchant technical service costs.
Target price HK$480, purchase rating: Comprehensive analysis, we took into account that the profit rate improvements in all of the company's businesses exceeded expectations, that the initial results of the game business flow restoration plus DNF mobile game fixed support; the advertising business integration AI tool is expected to better unleash potential. Revenue and operating profit forecasts were based on 2024 forecast data, and the target price was calculated to be HK$480. Compared with the previous closing price, there was room for a 20.9% increase in the purchase rating.