Jinwu Financial News | According to Tianfeng Securities Research, Tencent (00700) 3Q2024 revenue was +8%, month-on-month; gross profit +16%, +3% month-on-month; non-IFRS operating profit +19%, +5% month-on-month; 3q2024's gross margin increased 3.6 pct year over year, with a slight decrease of 0.2 pct month-on-month. The 3Q2024 company's operating expenses were +12% year-on-year and +5% month-on-month, slightly higher than the bank's and media expectations, but the expense ratio was still relatively low. The company's business-level revenue, gross profit, and operating profit were basically in line with the bank's expectations and media expectations, and continued to maintain the trend of year-on-year growth in non-IFRS operating profit > year-on-year growth in gross profit > year-on-year growth in revenue.

3Q2024's online game revenue was +13% year-on-year, which is basically in line with expectations and media expectations. Its domestic game revenue in China was +14% year over year, slightly higher than this forecast, driven by factors including “Fearless Contract”, “Wang Zhe Rongyao”, “Peace Elite”, and “Dungeons and Warriors: Origins”; 3Q2024's overseas game revenue was +9% year-on-year (+11% at a fixed exchange rate), slightly lower than that forecast. The growth rate of overseas game revenue lagged significantly behind the revenue growth rate. Due to the increase in the retention rate of some games, the company extended the revenue deferral cycle accordingly. Looking ahead, the bank expects game revenue growth to continue to accelerate in the fourth quarter. Continue to monitor the operating pace of “Dungeons and Warriors: Origins”. Although Nexon is relatively cautious about 4Q2024's revenue guidelines in China, the company's management also indicated at the performance meeting that it is expected that the fourth quarter will be an integration period for “Dungeons and Warriors: Origins”. Next year, important content updates will be released during the Spring Festival to increase user retention and monetization.

The bank said that considering that the company's game layout system is mature, there is more inventory space in the middle of WeChat search commercialization, and the growth rate of financial payments is expected to pick up with macro demand. The bank raised its 2024-2026 forecast non-IFRS net profit to 228.1/264.9/294 billion yuan (the original forecast was 217.8/251.7/278.6 billion yuan), with year-on-year growth rates of 45%/16%/11%, respectively. As of 2024/11/17, the company's stock price corresponding to the 2024/2025/2026 forecast PE was 15x/12x/11x, respectively. The 12-month media rolling forecast PE was below the 5-year median 1.1 standard deviation, which is at the historical quantile of 11%. Compared to the NASDAQ, the 12-month media outlook PE is 1.5 standard deviations below the 5-year median. It is in the 8% historical quantile, and the valuation is relatively low. The bank expects game growth to accelerate in the fourth quarter, and the advertising and financial business is expected to benefit from macroeconomic recovery. After compounding performance, repurchases may resume, which will help improve valuation constraints. Maintain a “buy” rating.