Morgan Stanley predicts that Tencent's gaming business is expected to achieve high growth in Q2 of this year and become a leading indicator for the company's future profits exceeding expectations. Morgan Stanley set a target price of HKD 450 for Tencent's Hong Kong stocks, which is 25.6% higher than the Friday closing price.
Earlier this week, Morgan Stanley published a research report titled "Tencent: A Safe Haven with Catalysts", stating that Tencent is a stable investment choice that can provide a certain degree of protection in market volatility.
Gary Yu and other Morgan Stanley analysts pointed out in the report that Tencent's gaming business is expected to achieve high-speed growth in Q2 this year and become a leading indicator of the company's future profits exceeding expectations.
The team pointed out that Tencent's domestic gaming business revenue is expected to grow by 10-15% year-on-year in Q2, a significant increase from 3% in the same period last year, while the growth rate of its international gaming business is expected to reach 40-50%, compared to 34% in the same period last year. This strong growth momentum is expected to offset the potential impact of macroeconomic factors on advertising and payment businesses.
The report specifically mentions the excellent performance of several games under Tencent, including Dungeon and Fighter Mobile (DnFM) and Supercell's (in which Tencent has a stake) "Brawl Stars".
DnFM has maintained a daily iOS income of 60 million RMB since its launch, while "Brawl Stars" has seen a year-on-year revenue growth of 5 to 10 times in Q2 of 2024.
Morgan Stanley believes that Tencent's diversified layout in the gaming market and strategic resource allocation will help to promote the sustainable growth of its gaming business. In addition, Tencent has demonstrated structural advantages in the early monetization cycle of its video accounts, market share growth, and profit margin sustainability.
Based on an estimated valuation of 13 times expected PE ratio in 2025, Morgan Stanley has set a target price of HKD 450 for Tencent's Hong Kong shares, which is 25.6% higher than Friday's closing price.
Analysts believe that Tencent's current stock price is attractive, and the company's share buyback plan of over 100 billion Hong Kong dollars provides investors with good entry points.
