CMS Expects TENCENT 2Q Rev. to Lift 14% YoY, Rating Buy
The company's 2Q revenue is expected to grow 14% YoY, with value-added services, advertising, and fintech growing 10%, 22%, and 17% respectively. In terms of the gaming business, TENCENT's key games "Honor of Kings" and "Peacekeeper" performed weakly in May, but showed recovery in June.
CMS noted that TENCENT's top 3 to 10 existing games grew 26% YoY in terms of gross billing in the second quarter, and looked forward to the recent release of "Valorant mobile" and the upcoming release of "Lost Ark mobile" at the end of July. The broker expected the company's non-IFRS net profit to increase by 31% YoY to RMB36.8 billion, while non-IFRS net margin is expected to reach 24.
CMS mentioned that $NASPERS LTD ADR(NPSNY.US$, TENCENT's largest shareholder, plans to continue to reduce its stake by 2 to 3% per year and to trim it to about 24% to 25% by the end of 2023. The broker reiterated its belief that investors' forecasts for the company's share price have already taken Naspers' reduction strategy into account.
The broker was optimistic about TENCENT's prospects for revenue recovery and margin expansion, but expected a more modest rate of growth given its investments in content, products and AI technology. The broker believed the company will continue to buy back shares, having repurchased about 58 million shares, worth about $20 billion, so far this year.
CMS maintained TENCENT's target price of $426 and its Buy rating.
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