Guosen Securities issued a research report, indicating that Tencent (00700) is about to release its third-quarter financial results. The firm predicts that in Q3 2024, Tencent will achieve revenue of 168.4 billion yuan, a 9% year-on-year increase. It is forecasted that in the third quarter, online advertising will see steady growth, the game business will continue to increase speed under the deferred impact, and the fintech business will be influenced by the macro environment. Specifically: ① In terms of games, under the deferred impact of revenue, the firm predicts a 13% growth in online games. The mobile game revenue of 'DNF' has slightly decreased compared to the previous period, mainly due to a decrease in the number of users. The firm predicts that with the loss of non-core users, the rate of decline of 'DNF' mobile game compared to the previous period will narrow. The base of old games is solid, and it is expected that the growth momentum will be good after the new version of 'Peace Elite' is launched in the summer, with 'Naruto' mobile game reaching a record high of over 10 million daily active users. ② In terms of advertising, it is expected that advertising revenue will increase by 16% year-on-year. On one hand, there is steady growth in video traffic, with more advertising space being gradually opened up. On the other hand, influenced by the macro environment and Tencent Video scheduling, brand advertising and alliance advertising revenue decreased compared to the previous period. In the third quarter, the firm observed: 1) WeChat Mini Program activating cross-domain traffic, expected to drive the acceleration of video traffic; 2) Taobao and WeChat opening up mutual access, Taobao merchants advertising CTR increasing within the WeChat ecosystem, expected to bring increased advertising placement. 3) AI-enabled advertising: Since July, Tencent's Advertising 3.0 system has been launched, and the firm expects an increase of about 5-10% in CTR.
The report continues to point out that in terms of revenue, the company's advertising business and fintech business are influenced by the macro environment. However, the release of advertising inventory and technological upgrades are expected to bring resilience to advertising growth. The payment business, which accounts for a large portion of revenue in the fintech business, is affected by the macro environment, but high-margin businesses such as wealth management are experiencing healthy growth. In addition, the continued development of video e-commerce brings growth in e-commerce advertising and technology service fees. In terms of profitability, the continuous development of the company's high-quality business provides potential for sustained profit growth. Considering the macroeconomic impact, profit expectations are slightly adjusted, with forecasted adjusted net income for 2024-2026 at 219.8/248.2/272.9 billion yuan respectively, with a slight decrease of 1%/1%/1%. Taking into account the company's good progress in video e-commerce, a slight rebound in the base of old games, the target price has been raised, giving a 2025 PE ratio of 16-18x, with a target price of 471-528 Hong Kong dollars. The 'outperform the market' rating is maintained.
