Morgan Stanley: Reiterate "overweight" rating on TENCENT (00700), target price lowered to HKD 550.
15/01/2025
GMT Eight
Morgan Stanley released a research report stating that it reiterates its "overweight" rating on TENCENT (00700) and considers it as its top pick. Due to foreign exchange adjustments, the target price has been lowered from HK$570 to HK$550, which is based on a comprehensive valuation method, equivalent to a forecasted PE ratio of 17 times for the fiscal year 2026 under non-International Financial Reporting Standards (IFRS) (estimated overall revenue compound growth rate of 9% from 2023 to 2026, estimated operating gross profit margin under non-IFRS of 39% in 2026).
The bank estimates that Tencent's revenue in the fourth quarter of last year accelerated in the gaming business and saw a rebound in Financial Technology and Business Services (FBS) business. It is estimated that the fourth quarter revenue grew by 9% year-on-year, while the advertising business maintained double-digit growth. The bank expects the company's operating profit under non-IFRS in the last quarter to slightly improve to 19% compared to the same period last year, due to better sales and control over general and administrative expenses.
The report maintains the profit forecast for Tencent for the years 2024 to 2025. The bank noted that Tencent has repurchased shares exceeding HK$112 billion, surpassing the commitment made last year to repurchase HK$100 billion worth of shares. The bank expects the expansion of WeChat Mini Programs and the extension of artificial intelligence, especially in 2C applications, to act as positive catalysts.