Citi Decreases TP of TENCENT to $503, Expects 1Q Results in Line

Citigroup has released a report on TENCENT, expecting its first-quarter results, which would be announced next month on the 17th, to be in line with expectations.

Citi forecasted TENCENT's non-GAAP net profit to grow 25% YoY to RMB32 billion or 22% margin, driven by 27% growth in online advertising revenue and 9% growth in fintech and business services (FBS) revenue. Although gaming activity benefited from effective Chinese New Year period promotions and new game releases, the broker conservatively expected gaming revenue to be flat YoY due to base effects and delayed revenue recognition.

Citi further expected the total YoY revenue growth of TENCENT to accelerate further from 1Q23 level in 2Q23 or 2H23, due to the accelerated release of new games, continued growth in Video Accounts, resumed growth in cloud revenue, and easing of the fintech environment. The broker maintained TENCENT's Buy rating and added it to its new Citi Focus List, citing it's solid execution, resilient business model and shareholder returns, but nevertheless lowered its target price from $520 to $503.

Looking ahead to the second quarter, the broker expected TENCENT's total revenue to rise 12.7% YoY to RMB151 billion, and non-GAAP net profit to grow 20.7% YoY to RMB34 billion.