Nomura: Maintains "buy" rating on TENCENT (00700) with a target price of 500 Hong Kong dollars.

Nomura released a research report stating that TENCENT (00700) net profit under non-international financial reporting standards for the third quarter increased by 33% year-on-year, exceeding expectations. The management indicated that the amount of stock buyback this year may exceed the annual target of 100 billion Hong Kong dollars. The bank maintains a "buy" rating for Tencent with a target price of 500 yuan. The bank pointed out that Tencent's total revenue in the third quarter increased by 8% year-on-year, in line with expectations. The net profit under non-international financial reporting standards increased by 33% year-on-year, exceeding both market and the bank's expectations. The increase in net profit was mainly due to higher-than-expected non-operating revenue and lower tax expenses. The gross margin increased by 3.6 percentage points to 53.1% year-on-year, slightly lower than the market's expectation of 53.4%. In the period, Tencent's marketing services (originally online advertising) revenue increased by 17%, surpassing the market's expectation of 16%. This growth mainly came from increased revenue from video accounts, mini programs, WeChat search, and contributions from brand advertisements related to the Paris Olympics. VA advertising grew by over 60% year-on-year in the third quarter, and the bank estimates it accounts for 17% of the company's total service revenue. Furthermore, online gaming revenue increased by 13% year-on-year, surpassing market estimates by 1%, mainly driven by a 14% increase in local and 9% increase in international market gaming revenue. The growth momentum of local gaming revenue accelerated, mainly benefiting from new blockbuster games, DNF mobile contributing to full-quarter revenue, and increased revenue from games like Honor of Kings. The report also mentioned that Tencent has reintroduced the Mini Shops e-commerce platform based on mini programs to help businesses establish WeChat stores and share products through various WeChat functions (including WeChat Moments and VA). Nomura noted that this concept seems innovative, but Tencent's past performance in e-commerce business has been concerning.