20220519-招银国际-腾讯控股-00700.HK-Recovery_to_delay_with_epidemic_and_transitions_4页_796kb

Tencent (700 HK) Company Update Summary

Core Content

Tencent (700 HK) reported 1Q22 results that were below expectations, with revenue growing by 0.1% YoY and net income declining by 23% YoY. The company's performance was impacted by the ongoing epidemic and its strategic shift towards quality growth, particularly in the cloud sector. The financial results were also lower than the consensus estimates, mainly due to weaker-than-expected performance in international games and advertising.

Main Points

• 1Q22 Financial Performance:

  • Revenue: RMB135.5bn, up 0.1% YoY (4% below consensus, 3% below CMBIG estimate).
  • Net income: RMB122.7bn, down 23% YoY (3% below consensus, 3% below CMBIG estimate).
  • Non-GAAP net profit: RMB106.8bn, down 23% YoY.

• Segment Performance:

  • VAS: 0% YoY (vs. 3% estimate).
  • Advertising: -18% YoY (vs. -19% estimate).
  • Others: +9% YoY (vs. +15% estimate).
  • Games: 0% YoY (vs. +9% in 4Q21), with domestic games at -1% YoY and international games at +4% YoY.

• Earnings Revisions:

  • Earnings for FY22-24E were trimmed by 11-15% to reflect the ongoing impact of the epidemic and reduced advertising budgets.
  • New target price (TP) set at HK$480, down from HK$510.

• Outlook:

  • Games are expected to show a moderate rebound in 2Q22E and 2H22E, with new game titles potentially driving growth.
  • Advertising recovery is anticipated in 4Q22E as lockdowns ease and macroeconomic conditions improve.
  • FBS and others may continue to slow in 2Q22E due to epidemic-related disruptions and a shift in focus to quality growth.

• Stock Performance:

  • Current price: HK$366.
  • Target price: HK$480.
  • 12-month price performance chart is referenced, but not included in the summary.
  • 1-month return: -5.3%.
  • 3-month return: -24.6%.
  • 6-month return: -25.8%.

• Shareholding Structure:

  • Naspers: 28.81%.
  • Ma Huateng: 7.39%.
  • Vanguard: 2.10%.

• Financial Summary:

  • Revenue growth: 2.4% in FY22E, 14.2% in FY23E, 12.9% in FY24E.
  • Gross margin: 42.8% in FY22E, 43.3% in FY23E, 43.7% in FY24E.
  • Operating margin: 23.6% in FY22E, 24.5% in FY23E, 24.6% in FY24E.
  • Net margin: 18.6% in FY22E, 19.5% in FY23E, 20.1% in FY24E.
  • Adjusted EPS: RMB10.9 in FY22E, RMB12.9 in FY23E, RMB14.9 in FY24E.
  • ROE: 15.4% in FY22E, 11.6% in FY23E, 12.0% in FY24E.
  • P/E ratio: 28.8x for FY22E, 24.3x for FY23E, 21.2x for FY24E.
  • P/S ratio: 5.3x for FY22E, 4.6x for FY23E, 4.1x for FY24E.

• CMBIGM Ratings:

  • BUY: Stock with potential return of over 15% over the next 12 months.
  • HOLD: Stock with potential return of +15% to -10% over the next 12 months.
  • SELL: Stock with potential loss of over 10% over the next 12 months.
  • NOT RATED: Stock not rated.

• Analyst Certification:

  • The analyst certifies that the views expressed in the report accurately reflect personal opinions.
  • No compensation was linked to the report's content.

• Disclosures:

  • CMBIGM may have investment banking relationships with the issuers covered.
  • The report is not an offer to buy or sell any securities.
  • There may be conflicts of interest, and the report is not guaranteed in accuracy or completeness.

Key Information

• Earnings:

  • Revenue and net income declined in 1Q22 due to epidemic and macroeconomic headwinds.
  • Earnings were revised downward for the next three fiscal years.

• Segments:

  • Advertising and FBS segments were particularly affected by the epidemic and regulatory pressures.
  • Games and VAS segments showed some resilience, though not as strong as expected.

• Outlook:

  • The company expects moderate recovery in games and advertising in the second half of 2022.
  • The next batch of game licenses is seen as a potential catalyst for growth.

• Investor Considerations:

  • The report is for institutional investors only in the U.S.
  • It is not suitable for all investors and should not be relied upon for investment decisions without professional advice.

Conclusion

Tencent's performance in 1Q22 was subdued due to ongoing challenges from the epidemic and regulatory pressures. While the company faces short-term headwinds, there is potential for recovery in the second half of the year, especially in the games and advertising sectors. The report maintains a BUY rating with a revised target price of HK$480, reflecting the company's long-term fundamentals and potential for future growth. Investors are advised to consult with a financial advisor before making any decisions.