Guotai Junan International maintains "buy" rating on TENCENT (00700) with a target price of 496.8 Hong Kong dollars.

GuoZheng International released a research report stating that they maintain a "buy" rating on TENCENT (00700), benefiting from the strong performance of the gaming business and the smooth progress of WeChat commercialization, the company's profit margin level is expected to remain high. Using the SOTP valuation method, based on the estimated 2024 PE ratios of 16x for value-added services, 20x for advertising business, and 10x for financial enterprises and cloud services, as well as a valuation coefficient of 0.9, the company is given a target price of HKD 496.8. GuoZheng International's main points are as follows: Steady growth in business matrix data In 2024Q3, the combined monthly active accounts of WeChat and WeChat reached 1.382 billion, an increase of 3% year-on-year. The mobile monthly active accounts of QQ reached 562 million, an increase of 0.7% year-on-year. In Tencent's various businesses, the mini program trading ecosystem is active, with transaction volume exceeding 2 trillion yuan in 2024Q3, a double-digit percentage increase year-on-year, benefiting from better coverage and solutions in applications such as ordering, electric vehicle charging, and medical services. Strong performance of local games driving strong growth in the gaming sector In 2024Q3, Tencent's gaming business revenue achieved strong growth. Online game revenue was 51.8 billion yuan, a 12.6% year-on-year increase. Among them, the revenue from the domestic market games increased by 14% year-on-year to 37.3 billion yuan, driven by games such as "Fearless Contract," "King of Glory," "Peace Elite," and "DNF." International game revenue reached 14.5 billion yuan, a 9% year-on-year increase to a quarterly high, mainly driven by the outstanding performance of Supercell's "Brawl Stars," "PUBG MOBILE," and "VALORANT." Overall improvement in B-side business performance Q3 marketing services business revenue increased by 17% year-on-year to 29.99 billion yuan. This growth is mainly driven by strong demand from advertisers for video accounts, mini programs, and WeChat search advertisements, as well as a slight contribution from brand advertisements related to the Paris Olympics. Financial technology and enterprise service revenue reached 53.09 billion yuan, a 2% year-on-year increase, with wealth management service revenue increasing year-on-year due to the expansion of user base and growth in customer assets, while payment service revenue decreased due to weak consumer spending. Enterprise service revenue increased year-on-year due to revenue growth in cloud services and merchant technology service fees. Risk warning: Changes in macroeconomic conditions, risks of new and old game products not meeting expectations, international business risks, regulatory uncertainty risks.