The overall performance is in line with expectations, the core business is sound, and then invest 50 billion to give play to the leverage effect of Tech for Good.

2Q21 Tencent achieved a total revenue of 138.26 billion yuan, an increase of 20.3% year-on-year and 2.2% month-on-month. The gross profit margin of 2Q21 was 45.4%, which decreased 0.9pct and 0.9pct compared with the same period last year. The net profit of Non-IFRS belonging to shareholders was 34.04 billion yuan, up 12.9% from the same period last year and 2.8% from the previous year. The adjusted net interest rate belonging to shareholders was 24.6%, a decrease of 1.6pct over the same period last year and a month-on-month increase of 0.1pct. Tencent announced on August 18 that it will invest another 50 billion yuan to promote common prosperity after investing 50 billion yuan to launch the strategy of "sustainable social value innovation". As of August 24, the company has bought back shares for four consecutive trading days, with a total of 672600 shares.

Social networks: the MAU of Wechat and QQ rose 3.8% to 1.251 billion compared with the same period last year. Mini Program and other companies contribute to Wechat's business ecology, while video accounts focus on promoting content ecology. 2Q21 social network revenue was 29 billion yuan, an increase of 8.6% over the same period last year and 0.7% month-on-month, accounting for 21% of the total revenue. The business ecology of Wechat is booming, and the transaction volume generated through Mini Program has more than doubled compared with the same period last year. In terms of video number, in the first half of 21, according to the Video Lamp Research Institute, the video number DAU reached 300 million. The video number selection platform was launched at the end of June to promote commercial construction, but the company also reiterated in the performance meeting that the current development focus of video number is still on the content ecological construction, and the commercial realization expectation is not high. In terms of digital content, as of 2Q21, the number of registered accounts of Tencent's fee-added services increased by 12.8% to 229 million compared with the same period last year.

Games: the growth rate has slowed down but the basic market is stable, and we will continue to strengthen measures to protect minors. If you consider the game revenue belonging to the social network business, 2Q21's game revenue is 51.8 billion yuan, an increase of 10.4% over the same period last year, a decrease of 3% from the previous month, accounting for 37.5% of the total revenue, of which 2Q21 mobile game revenue was 40.8 billion yuan, up 13.4% from the same period last year and 1.7% lower than the same period last year. In the second half of the year, "League of Legends Mobile Games" (has won the version number), and completed the vanguard test in June, is expected to be launched this year. Tencent has further strengthened its measures to protect minors in China. According to 21Q2, 2.6 per cent of Tencent's players under the age of 16 account for streaming games in China, of which 0.3 per cent are players under the age of 12.

Advertising: although education investment has an impact, it still shows good growth. In the second half of the year, we will pay attention to the impact of regulation such as data security and personal information protection on income. The income of 2Q21 and Tencent Ads was 22.83 billion yuan, up 23.1% from the same period last year and 4.6% from the previous month. Although the advertising demand in the education industry was weak, the demand from advertisers in categories such as Internet services and consumer necessities increased, and the growth was driven by the consolidation of car-changing advertising revenue. Of this total, social and other advertising revenue was 19.5 billion yuan, up 27.8 percent from the same period last year, up 5.4 percent from the previous year; media advertising revenue was 3.3 billion yuan, up 0.3 percent from the same period last year, down 1.2 percent from the previous year.

Financial technology and enterprise services: high growth in a single quarter, cloud infrastructure, PaaS, SaaS help enterprises digitize. 2Q21's revenue from financial technology and corporate services was 41.89 billion yuan, up 40.3% from the same period last year and 7.3% from the previous month. The increase in revenue from financial technology services mainly reflects the growth in digital payment transactions. Enterprise service revenue has increased significantly compared with the same period last year, mainly due to the revenue contribution brought by the digitization of public services and traditional industries and the merger of car-changing corporate services.

Investment advice: recently, the company has been affected by regulation and increased business investment, the expected performance has been lowered, and fluctuations caused by short-term regulation and mood may be inevitable, but we believe that Tencent's main business still has a solid foundation. At the business level, the company's games provide basic performance support, globalization and reserves of heavy products are expected to continue to drive growth, Wechat video number to expand short video traffic and cash space, financial technology, advertising in Taiwan, Wechat ecological commercialization to provide medium-and long-term growth drivers, cloud and other enterprise services tap the long-term value of the Internet industry. On the one hand, the company actively buys back and increases social value investment to help ease investors' concerns.

According to the 2Q21 financial indicators, considering the impact of game rhythm and regulation, and considering that the company will take the initiative to increase investment in strategy, we downgrade the company's Non-IFRS homing net profit from 2021 to 2023 to 135.7 billion / 161.7 billion / 192 billion yuan (the previous value is 142.7 billion / 170.8 billion / 2048 billion yuan), a year-on-year increase of 10.6%, 19.2%, 18.7%, corresponding to 27.8x/23.3x/19.6x, respectively, and maintain the buy rating.

Risk tips: the timely decline in the share of active users, the decline in the flow of core mobile games, the slower-than-expected progress in the expansion of new and overseas games, the less-than-expected development of Wechat commercialization and video accounts, and the lower-than-expected progress in financial technology and corporate services. antitrust and other regulatory risks, macro-economy is not as expected.