Event: On September 5-6, the 2024 Tencent Global Digital Ecosystem Conference was held in Shenzhen. It covered the main summit, the Cloud Smart Summit, and hundreds of sub-forums including smart retail, gaming, and digital intelligent transportation. It was a centralized display for Tencent to help thousands of industries in the industrial Internet field. Focusing on the key topic of “growth,” the conference proposed helping enterprises shape the three engines of intelligence, internationalization, and integrated innovation, and share product and technological progress.

Intelligent: A new Tencent hybrid Turbo model with better performance and higher cost performance was released to promote the effective integration of the AI model into the industry. 1) Helping to increase efficiency and reduce costs: Hybrid has launched more than 700 products within Tencent. Tencent Cloud's AI code assistant covers more than 50% of internal programmers, and coding time has been reduced by an average of 40%. 2) Empower enterprises with digital intelligence: Hybrid Turbo has been officially launched, increasing inference efficiency by 1 times and reducing inference costs by 50%; building a base+model+tool+application product matrix, and relying on the newly launched “Tencent Cloud Intelligent Computing”, a high-performance intelligent computing platform integrating computing and storage networks, to help enterprises break through computing power bottlenecks and accelerate the implementation of AI applications.

Internationalization: A panorama of digital solutions for enterprises going overseas was revealed for the first time, and international business became a new growth engine for Tencent Cloud. Tencent Cloud has served more than 10,000 overseas customers, covering more than 80 countries and regions. Revenue in the Middle East region is +85%, and Tencent Cloud's overseas customer coverage exceeds 70%. Over the past three years, Tencent Cloud's international business has maintained rapid double-digit growth. The conference showcased Tencent Cloud's leading products: 1) Tencent Cloud audio and video solutions: solutions cover audio and video PaaS, cloud edge security acceleration platform EdgeOne, etc., using EdgeOne; 2) Self-developed agile R&D collaboration platform TAPD: It has become an infrastructure developed in the domestic game industry, providing a complete product lifecycle R&D collaboration solution for the well-known domestic 3A game “Black Myth: Goku”. It also shows how Tencent Cloud's self-developed database TDSQL and Tencent Cloud CDC help companies grow overseas.

Integrated innovation: Announcing a complete integrated innovation product system, focusing on self-research capabilities and product strength. 1) Core products such as database TDSQL, proprietary cloud TCE, big data TBDS, operating system TencentOS, and artificial intelligence development platform TI have adapted to mainstream domestic software and hardware ecosystems through years of internal training and improvement, and have become a solid digital foundation to provide digital solutions for large and small enterprises. 2) The series of self-developed application software Tencent Conference, Enterprise WeChat, Tencent Documents, etc., has a convenient interactive experience and service interface, and unique C2B connectivity capabilities, driving the penetration rate of leading customers in various industries such as Tencent Conference to exceed 50%.

Profit forecasting, valuation and ratings: The 2024 Tencent Global Digital Ecosystem Conference was held. The number of Tencent Industrial Internet ecosystem partners has exceeded 11,000, and the total number of customers served together exceeds 2 million. In three years, the number of partners with annual revenue reaching the million-level increase by 150%; the revenue of SaaS partners such as Tencent Conference has also doubled 4.5 times in the past two years. We believe that Tencent's corporate service business maintains good business progress, insists on focusing on products, and positioning itself as a platform, and is expected to further establish a healthy development ecosystem.

Considering the significant increase in the company's 2Q24 non-IFRS net profit, the high gross profit business growth continues to advance, accounting for the profit improvement of joint venture companies. It remains optimistic that as DNF mobile games and other products confirm revenue in subsequent quarters, and the performance recovers in line with the product cycle, continuous optimization of operating leverage under efficiency increases and cost reduction, and the company's 24-26 non-IFRS net profit forecast to 225.58/254.39/276.16 billion yuan (+6.6% compared to the previous forecast, respectively, +6.6% /+7.6) /+8.1%). The current price corresponds to 14/13/12 times the 24-26 non-IFRS PE, respectively, maintaining the “buy” rating and maintaining the target price of HK$430.

Risk warning: Risk of regulatory uncertainty, macroeconomic risk, risk that new and old game products will not perform as expected, and competition will increase the risk.