Rating Quick Look | Wall Street calls Tencent at HKD 400! Netease, HKEX target prices lowered

Morgan Stanley: Maintains "Overweight" rating on Tencent Holdings, with a target price of HKD 400

The bank expects a 5% year-on-year increase in first-quarter revenue, compared to the market's expectation of 6%. This is mainly due to the soft growth in the gaming business and the slowdown in financial technology and enterprise services, while advertising revenue growth remains strong. It is expected that gross profit and net profit will grow steadily, with year-on-year increases of 18% and 25% respectively. The increased stock buyback is sufficient to offset the first-quarter sell-off by major shareholder Prosus.

The bank pointed out that since Tencent announced a share buyback of at least $13 billion by 2024, double the scale of 2023, Tencent has repurchased over 51 million shares in the first quarter. The bank estimates that this covers approximately 41 million shares sold off by Prosus in the first quarter. Tencent's daily repurchase amount exceeds $128 million, with a total repurchase amount of $1.7 billion in the first quarter. The repurchase amount from the beginning of the year to date is close to half of the total for the 2023 fiscal year.

However, the bank noted that during the quiet period before the first-quarter earnings announcement, the buyback may be suspended for a month.

Haitong International: Maintains "Outperform" rating on Tencent, with a target price of HKD 430

The bank expects Tencent to achieve high-quality growth and stable shareholder returns this year, believing that the amount of the company's buyback is sufficient to offset the negative impact of South African shareholder Naspers reducing its holdings. The future product line reflects that the growth of the gaming business in the second half of the year will accelerate, with a target price of HKD 430.

The bank expects Tencent's total revenue in the first quarter to be RMB 157 billion, up 5% year-on-year and 1% quarter-on-quarter, lower than the bank's original forecast by 1%, mainly due to downward adjustments of 1% and 5% in revenue forecasts for games and social network media, respectively, to reflect the high local game base and easing of live broadcast revenue.

The bank roughly maintains its forecast for Tencent's first-quarter non-GAAP net profit at RMB 43 billion, up 33% year-on-year and 1% quarter-on-quarter.

Morgan Stanley: Lowers NetEase's target price from $135 to $120, maintains "Overweight" rating

The bank removes NetEase from its top picks, citing weaker growth in the next two years compared to peers Ctrip and Tencent Music. This is due to risks in traditional games and expectations for new games, but it remains optimistic that NetEase's performance in the second half of the year will be better than the first half.

The bank noted that "Yan Yun Sixteen Sounds" will be released on July 26, but only on the PC platform, and the currency realization plan is still uncertain. The bank has lowered its forecast for NetEase's mobile game revenue growth this year from 13% to 11% and raised its forecast for PC game revenue decline from 13% to 10%. Once NetEase's mobile game release and monetization plan become clearer, the outlook may become more positive.

BOC International: Maintains "Buy" rating on NetEase-S, with a target price of HKD 204

Taking into account the potential dilution of game gross profit margin and the increase in operating expenses due to Blizzard's return, the bank expects NetEase's adjusted net profit for the 2024 fiscal year to increase by 2% year-on-year to RMB 33.4 billion.

The bank expects overall and core online game revenue for NetEase in the first quarter to increase by 7% year-on-year. Among them, mobile game revenue remains stable, with a 15% year-on-year increase. The gross profit margin and operating profit margin are 62.2% and 29.6% respectively, in line with market expectations The bank expects that Blizzard Games will resume operations in the mainland from this summer, and deepening cooperation with Microsoft Games will not only help increase users and revenue, but also unleash medium to long-term potential.

Bank of America Securities: Reiterates "Buy" rating on Hong Kong Exchanges and Clearing, with target price lowered from HKD 302 to HKD 290

Due to lower expected investment returns, profit forecasts for 2024-2026 have been lowered by 4%-7%. It is expected that there will be no major reforms this year due to changes in the management of the Hong Kong Exchanges and Clearing, but measures will still be taken to support the market.

The report states that the company will announce its first quarter performance at the end of this month, with a predicted net profit decrease of 22% to 2.7 billion yuan compared to 3.4 billion yuan in the first quarter of 2023, which was the second highest quarterly net profit in history. Improvement in trading volume in March may drive trading fees in the second quarter of 2024 for the Hong Kong Exchanges and Clearing