Jinwu Financial News | BOC International released Tencent (00700)'s third-quarter results forecast. Game revenue is expected to increase 11% year over year, which is basically in line with previous expectations. Among them, domestic/overseas mobile game revenue may have increased 15%/18% year over year in the 3rd quarter, driven by “mDnF”/“Brawl in the Wilderness”; the decline in mobile game revenue may have narrowed to 1%, considering the rise in popularity of “DnF” or partially compensating for the impact of the “DnF” high base.
The bank slightly lowered the year-on-year growth rate of Tencent's advertising revenue in the 3rd quarter to 16%. The main considerations were: 1) the adjustment of advertisers' advertising budgets; 2) the popularity of Tencent video content fell short of previous expectations. Furthermore, payment business revenue is expected to increase 1% year-on-year in the 3rd quarter, which is basically the same as the growth rate in the 2nd quarter. Taobao will contribute incrementally or gradually increase. The cloud business will continue to balance healthy revenue and gross profit growth.
Considering continued cost control and the release of operating leverage, it is expected that Tencent will maintain the trend of profit growth faster than revenue growth. The bank will basically maintain the 2024/25 net profit forecast, adjust the valuation to 2025, and raise the target price to HK$513 (originally HK$486) based on a 20-fold price-earnings ratio. There is room for a 17% increase from the current price to maintain purchases.
