Tencent's performance is expected to accelerate its recovery. Is a reasonable stock price of HKD 500?

TENCENT will release its Q2 financial report on August 16.

Guangfa Securities stated that the recovery of TENCENT's advertising, financial, and cloud businesses is stable, with a slight seasonal decline in game revenue in Q2. However, the overall recovery trend remains unchanged. With the launch of several heavyweight new games in Q3, it is expected to drive performance acceleration in the second half of the year.

As financial regulation becomes normalized, the financial technology business will gradually return to a new stage of growth driven by product innovation.

Q2 Performance Outlook

Guangfa Securities, Guosen Securities, and Western Securities expect TENCENT's Q2 total revenue to increase by 12% YoY.

Guangfa Securities predicts TENCENT's Q2 NonGAAP net profit to be 35.2 billion yuan, with a YoY/QoQ growth of +25%/+8%.

Western Securities predicts a Non-IFRS net profit of 34.4 billion yuan, a 22% increase compared to the same period last year.

Guosen Securities predicts TENCENT's Q2 Non-IFRS attributable net profit to be 36.3 billion yuan, a YoY growth of 29%.

Guangfa Securities predicts a gross profit margin of 45%, an increase YoY and stable QoQ.

Segment Business Forecast

(1) Guangfa Securities predicts TENCENT's Q2 game revenue to be 45.4 billion yuan, with a YoY/QoQ growth of +7%/-6%. Western Securities predicts game revenue of 45.9 billion yuan, a YoY increase of 8%, with a 2% YoY growth in domestic game business revenue.

(2) Guangfa Securities predicts TENCENT's Q2 social network revenue to be 30.9 billion yuan, with a YoY/QoQ growth of +6%/+0%.

(3) Western Securities predicts advertising revenue of 22.9 billion yuan, a YoY increase of 23%. Guangfa Securities predicts 22.7 billion yuan, with a YoY/QoQ growth of +22%/+9%.

(4) Guangfa Securities predicts financial technology and enterprise service revenue to be 49.7 billion yuan, with a YoY/QoQ growth of +18%/+2%. Western Securities predicts a 17% YoY increase in financial technology and cloud business revenue to 49.3 billion yuan, with a 6% YoY growth in cloud business revenue.

Investment Recommendation

Guangfa Securities adjusted its revenue forecast for 2023-2024 to 618.5 billion yuan and 680.4 billion yuan, with a growth rate of 11.5% and 10.0% respectively. The adjusted net profit attributable to shareholders is estimated to be 144.8 billion yuan and 166.0 billion yuan, with a growth rate of 25.2% and 14.6% respectively.

Based on the SOTP fair value corresponding to 501.60 Hong Kong dollars per share in 2023, the performance is maintained at a "buy" rating.

Guosen Securities stated that the current stock price of TENCENT corresponds to a PE ratio of approximately 21 times in 2023.

Considering that the launch of key new games by the company is slightly delayed compared to previous expectations, the profit forecast is slightly adjusted. However, the performance of TENCENT this year is still promising, and a "buy" rating is maintained.