CMB International released a research report stating that it maintained the “buy” rating of Tencent Holdings (00700) and slightly lowered its total revenue forecast for 2024 to 2026 by 1% to 2%, mainly reflecting the relatively weak gaming business. The target price was lowered from HK$450.5 to HK$445.
According to the report, Tencent is still on track to increase profit margins, increase revenue contributions to high profit margins, and improve operating leverage. The company also promised to increase shareholder returns. It is estimated that first-quarter revenue increased 6% year on year to 158.6 billion yuan, non-International Accounting Standards (non-IFRS) net profit increased 31% year on year to 43.1 billion yuan, and gross margin increased by about 3 percentage points year on year.
The bank believes that Tencent's game business is still under pressure in the short term. It is estimated that revenue for the first quarter fell 2% year on year, and positive growth is expected to resume in the second quarter with the launch of new games. Revenue from social networking services for the first quarter is also estimated to fall 2% year over year, mainly affected by adjustments in Huya and music streaming services, but partly offset by steady growth in mini-game revenue.