Tencent's Q1 results beat expectations and the share price is expected to reach $400?

Views 21322024.05.27

$TENCENT(00700.HK)$The company's first quarter non-international financial reporting benchmark net profit rose 54% year-on-year to RMB502.65 billion, better than market expectations. Revenue was slightly higher than market expectations of $15,95 million. First-quarter earnings and revenue both beat market expectations. As seen in the figure below, only fintech and enterprise services revenue fell slightly short of market expectations. Overall performance remains in line with the market's optimistic expectations, which is believed to be very supportive for the post-market share price. Below we go to see in more detailTencent ResultsPerformance and preliminary determination of the investment value of the post-market ~

Tencent has had good profitability in the past few quarters, one of the important reasons being that the company's overall gross margin has improved over the past two years, the performance of the company's cost control strategy and the performance of its advertising and fintech gross margin are the main factors driving the increase in profits. This quarter's results were buoyant, while video numbers for online advertising remained the company's main growth driver, as the results mentioned in the results showed a year-over-year increase in total user usage of video numbers by more than 80%.

Source: Company's Hong Kong Stock Exchange Notice
Source: Company's Hong Kong Stock Exchange Notice

Source: Company's Hong Kong Stock Exchange Notice

Below I will take a look at Tencent's three core businesses

First, the performance of the game business is still weak

Source: Company's Hong Kong Stock Exchange Notice
Source: Company's Hong Kong Stock Exchange Notice

Source: Company's Hong Kong Stock Exchange Notice

Source: Company Reports
Source: Company Reports

Source: Company Reports

Tencent's domestic gaming market declined 2% year-on-year to RMB345 billion in the first quarter. However, the company noted that the company's high margins last year and the commercialization of Peace Elite in the second half of last year resulted in a return of about 3% year-on-year in the total flow of games in the domestic market, which is certainly a loss in overall performance.

In terms of international market revenue, up 3% year on year to RMB136 billion, although it is better than the domestic market, you can see from the above chart that the growth of international gaming revenue has slowed down considerably, and the overall growth space is not very clear for the time being, mainly because Tencent is still not lacking some well-known brands for the time being. THE GAME SHOWCASES BOXING IN THE INTERNATIONAL MARKET.

Small Summary: The gaming business did not improve beyond market expectations this quarter, and this business is still very important for Tencent, as significant cash flow returns can be mentioned for the company. Unless there is a clear pullback, the market should not be too surprised, with more attention being given to the new releases of the season, including DNF “Dungeons & Warriors: Origins”, which premiered on May 21.

Second, online advertising = catalyst for rising profits

Source: Company's Hong Kong Stock Exchange Notice
Source: Company's Hong Kong Stock Exchange Notice

Source: Company's Hong Kong Stock Exchange Notice

Source: Company's Hong Kong Stock Exchange Notice
Source: Company's Hong Kong Stock Exchange Notice

Source: Company's Hong Kong Stock Exchange Notice

The first quarter of the year is a traditional off-season for the advertising industry, but Tencent's advertising business continued to grow at a rapid pace, with first-quarter revenue growing 26 percent year-on-year to RMB265 billion, as the company said, driven by growth in video numbers, widgets, public numbers and search per search. THE MAINLAND AUTOMOTIVE SECTOR IS COMPETING STRONGLY THIS YEAR, AND ADVERTISING SPENDING IN THE AUTOMOTIVE SECTOR HAS ALSO GROWN SIGNIFICANTLY. WE BELIEVE THAT ADVERTISING SPENDING IN THE GAMING, INTERNET SERVICES AND CONSUMER SECTORS WILL IMPROVE IN THE FUTURE AS THE MACRO ECONOMY IMPROVES. THE PROFIT OUTLOOK FOR ONLINE ADVERTISING IS VERY OPTIMISTIC, MAINLY BENEFITING FROM THE STRONG WECHAT User network.

Small summary: The seasonal impact of online advertising is not a big problem. Continued improvement in gross margin in the peak season this year was the main catalyst for the rise in profits, as well as advertising business in macroeconomic Vietnam, as the market expects an improvement in the mood, which can be said to be the end of the day.

Third, the Fintech Department is still waiting for the harvest period

Source: Company's Hong Kong Stock Exchange Notice
Source: Company's Hong Kong Stock Exchange Notice

Source: Company's Hong Kong Stock Exchange Notice

Source: Company's Hong Kong Stock Exchange Notice
Source: Company's Hong Kong Stock Exchange Notice

Source: Company's Hong Kong Stock Exchange Notice

FINTECH AND ENTERPRISE SERVICES REVENUE GREW 7% YEAR-ON-YEAR TO RMB523 BILLION, SLOWING FROM THE PREVIOUS TWO QUARTERS, AND SLOWING GROWTH IN OFFLINE CONSUMER SPENDING IS INEVITABLE IN THE FACE OF WEAK MACRO ECONOMIC PERFORMANCE. However, the company cited a decade-long year-on-year growth in both banking and enterprise services, and cloud services remain the company's key business investment. The gross margin continued to improve as a result of the effects of scale, with gross margins rising to 45.6% in the quarter, a new high in almost two years.

Small Summary: This business is highly sensitive to macroeconomics and has not yet reached maturity in the current macroeconomic environment. However, a series of recent bailout policies have helped to improve the overall financial market sentiment, and help for Tencent's business will be greater, and some banking and cloud businesses are expected to continue to grow at a high rate, which is the core rationale for Tencent's long-term investment value.

Tencent ResultsSubsequent Judgments

The overall results beat market expectations, but the surprises were not as obvious. The live broadcast of the results management meeting at 2000 hours tonight may have a number of performance guidelines that will be of interest to the market. Investors who are excited can watch the following live stream to make their judgments.

In terms of long-term investment books, Tencent's current valuation is still not high, at about 28.3 times market earnings. Bancillary advertising and fintech businesses could benefit significantly if the macroeconomic environment improves. The improvement in the backstop business in the second quarter of this year is also expected to be a catalyst for the company's profit increase. Finally, the company's current cash flow performance is strong and, supported by the share buyback plan, Tencent shares are expected to remain on the path to a valuation recovery, and the market remains the preferred choice for the Internet industry.

Source: WIND
Source: WIND

Source: WIND

It is worth mentioning that Tencent's overall gross margin has been really strong over the past two years, mainly due to improved gross margins from online advertising and fintech, but the company's cost-cutting policies will continue to emerge in the future, while maintaining market leadership. This is in line with Market Share Gainers and Margin Defenders, as stated earlier in the late April report by Goldman Sachs, who believe that stocks that meet the above criteria are worth holding on a long line.

Source: Company's Hong Kong Stock Exchange Notice
Source: Company's Hong Kong Stock Exchange Notice

Source: Company's Hong Kong Stock Exchange Notice

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