We are upbeat on Tencent 2H24 earnings growth outlook, supported by the reacceleration of games revenue growth and incremental revenue contribution from high-margin businesses (e.g. Video Account and Mini Games). In the longer term, China's potential policy stimulus to boost economic growth and consumption may benefit Tencent's FBS (fintech and business services) and advertising businesses. However, in 3Q24, overall consumption sentiment remains relatively soft and continues to weigh on Tencent's fintech business. Thus, we slightly lower 3Q24E FBS revenue/FY24 total revenue forecast by 2%/1% respectively. We now estimate total revenue to grow by 8% YoY to RMB166.8bn and non-IFRS net income to increase by 24% YoY to RMB55.6bn in 3Q24E. Despite the recent rally, Tencent's current valuation of 14x FY25E PE (excl. strategic investments) remains attractive given its earnings growth outlook and shareholder return. We roll forward our valuation window to FY25E and raise our SOTP-derived target price to HK$525.0 (previous: HK$480.0). Maintain BUY.

Expect games revenue growth reacceleration in 2H24E. We forecast games revenue to grow by 13% YoY to RMB51.8bn in 3Q24E (1Q24/2Q24: - 1%/+9% YoY), mainly driven by the incremental contribution from DnF Mobile, steady performance of legacy games, and solid growth of international games business. DnF Mobile continued to rank among the top 5 in China iOS games grossing chart since its launch in May. We expect its strong grossing performance to be gradually reflected in the company's 2H24 games revenue growth. Regarding product pipeline: 1) the launch of Delta Force: Hawk Ops in September achieved early success and attracted over 25mn registered users; 2) One Piece Mobile launched its final test on Sept 26, which has attracted over 400k registrations on TapTap.

Macro uncertainty continues to weigh on FBS and advertising business. We forecast FBS revenue to grow by 3% YoY to RMB53.7bn in 3Q24E (1Q24/2Q24: +7%/+4% YoY), mainly due to soft payment volume growth amid weak consumption sentiment. We expect advertising business to maintain resilient revenue growth of 15% YoY in 3Q24E, mainly driven by strong growth of Video Account ads, but partially offset by normalization of Tencent Video ads and mobile ads network revenue growth. Looking ahead, the potential consumption stimulus policy may benefit Tencent's FBS and ad businesses, but we expect it will take time to see tangible results.

Driving resilient earnings growth. Tencent remains committed to its quality growth strategy, and we expect its overall GPM to rise by c.4ppt YoY to 53.6% in 3Q24E, underpinned by incremental contribution from high-margin revenue streams (e.g. Video Account and Mini Games). Tencent will continue to unleash operating leverage. We forecast total revenue/gross profit/non-IFRS operating income to grow by 8/17/19% YoY in 3Q24E.