According to CNI Xiangmi Lake Fintech Index, Tencent (00700) Q2 performance showed that total revenue increased by 8% YoY to RMB 161.1 billion, which was basically in line with the bank's expectation (RMB 160.9 billion) and the market consensus expectation (RMB 161.4 billion); Non-IFRS operating profit increased by 27% YoY to RMB 58.4 billion, which was basically in line with the bank's expectation (RMB 57.7 billion); Non-IFRS net income increased by 53% YoY to RMB 57.3 billion, exceeding the bank's and the market's consensus expectations by 17% and 18% respectively, mainly due to an increase in profit sharing of joint ventures (an increase of RMB 6.6 billion YoY).
The bank pointed out that the company's game revenue increased by 9% YoY to RMB 48.5 billion (3% above market consensus). Domestic game revenue increased by 9% YoY to RMB 34.6 billion, with gross revenue growth exceeding revenue growth, thanks to the successful launch of Dungeon and Fighter mobile game and the recovery of flagship products such as Honor of Kings and Peacekeeper Elite. International game revenue increased by 9% YoY to RMB 13.9 billion, while international game gross revenue increased significantly faster than revenue growth, mainly driven by the strong performance of PUBG Mobile and Supercell games. Due to the strong growth in game gross revenue, the bank expects game revenue growth to accelerate to YoY 15% in the second half of 2024.
The bank stated that the strong growth of game gross revenue has made them optimistic about the acceleration of the company's revenue and profit growth in the second half of the year. The development of the e-commerce ecosystem will support the growth of consumer internet revenue in the medium and long term, while Fintech and Business Services (FBS) revenue should rebound with the recovery of the economy. The bank maintains the overall unchanged operating profit forecast for FY2024-2026, but raises the non-IFRS net income forecast by 5-8% to reflect the increase in profit sharing of joint ventures. The bank maintains its buy rating and target price per share of HKD 480 based on DCF valuation method.