Nomura Raises TENCENT TP to $500; 3Q Non-IFRS NP May Rise 23% YoY

Nomura released a report, projecting TENCENT's 3Q24 total revenue to rise 8% YoY, in line with street consensus. The 3Q24 non-IFRS net profit was expected to hike 23% YoY, 3% above street consensus, given ongoing margin expansion. The company’s gross margin is likely to improve by 4 ppts YoY to 53.6% in 3Q24, higher than the market expectation of 53.4%, thanks to the shift in the revenue mix towards high-margin businesses.

Tencent's online game revenue is likely to accelerate to 13% YoY growth in 3Q24, vs the 9% YoY growth in 2Q24, according to the report. Based on Sensor Tower, Tencent's game revenue in mainland China regained vitality due to the new blockbuster title, mobile DNF, which was especially strong during the summer. The total monthly revenue during peak months may reach RMB5 billion.

Nomura raised its non-IFRS net profit forecasts for Tencent in FY2024 and FY2025 by 5% and 3%, on its assumption that non-operating income will be higher in both years, and the operating margin forecast in FY2024 will be higher. The target price was raised from HK$478 to HK$500, with Buy rating kept.