According to a research report from Bocom Intl, it is expected that Tencent's (00700) Q2 gaming revenue will increase by 6% year-on-year, a slight increase from the previous expectation of 5%. 1) Mobile games: revenue growth of local/overseas mobile games is accelerating, with Q2 year-on-year growth of 31%/47% respectively, compared to 9%/33% in Q1. The bank estimates that local mobile game revenue will increase by 8% year-on-year in Q2, and will accelerate quarter by quarter in the second half of the year, while overseas mobile game revenue will increase by 22% year-on-year. 2) PC games are still affected by the high base of DnF last year, and it is expected that Q2 revenue will decrease by 6% year-on-year.
The bank expects the advertising momentum to continue in the industry and maintains the expectation of a 16% year-on-year increase in Tencent's Q2 advertising revenue. According to data from AppGrowing, the proportion of game and short video advertising has increased year-on-year. Continues to be bullish on the long-term growth potential of WeChat's ecological advertising.
Based on the strong performance of new games, the bank has raised its forecast for 2024 gaming revenue by 2% and maintains its expectation of a 16% annual increase in advertising revenue. Considering the increase in short-term marketing investment for new game releases, it maintains its profit expectations for Q2 and 2024. Based on a core earnings business PE ratio of 20 times and a cloud business P/S ratio of 2 times, it maintains a buy rating with a SOTP target price of HKD 457, corresponding to 16/14 times PE ratio for 2024/25.
