BOCOM INTL: Maintains "buy" rating on TENCENT (00700) with a target price of 513 Hong Kong dollars.

BOCOM INTL released a research report stating that it maintains a "buy" rating on TENCENT (00700), with an expected 8.2% year-on-year growth in total revenue for the fourth quarter, including social media +7%, domestic games +18%, overseas games +10%, financial enterprise services +4%, and advertising +9%. The growth rate in operating profit is expected to remain faster than gross profit and revenue. It also predicts an 8.6%/7.7% increase in revenue for 2025/26, with a 13%/11% increase in operating profit, and a target price of 513 Hong Kong dollars. The report cited Tencent's performance in the third quarter of 2024: total revenue of 167.2 billion RMB, an 8%/4% year-on-year/quarter-on-quarter increase, in line with market expectations. The year-on-year comparison showed a 13% increase in gaming revenue, 4% increase in social media revenue, 2% increase in financial enterprise services revenue, and 17% increase in advertising revenue. The gross profit margin improved to 53% year-on-year, with adjusted net profit of 59.8 billion RMB, a 33% increase year-on-year, driven by revenue growth in high gross profit businesses such as domestic games, video content, and search, as well as optimization of cloud costs. Adjusted earnings per share were 6.34 RMB, exceeding market expectations by 16%/11%. The report indicates that Tencent's performance in gaming, advertising, and enterprise services exceeds industry standards. It predicts an 18% year-on-year increase in domestic gaming revenue in the fourth quarter, mainly driven by the positive impact of flagship game revenue and the release of new games like "Delta Force". The report's gaming revenue tracking shows a slight decrease in gaming revenue in October compared to the third quarter, but with the launch of New Year's/Chinese New Year activities, it is expected that domestic gaming revenue will stabilize in December with manageable impact on revenue. The continued success of overseas games demonstrates Tencent's capabilities in game development and operation. While advertising may be affected by macroeconomic uncertainties, the continuous improvement in advertising conversion through new advertising products, placements, and AI support will also drive advertising revenue growth.