The Zhitong Finance App learned that Guojin Securities released a research report commenting on Tencent's (00700) performance for the first quarter of '24. The team believes that Tencent's gross margin was drastically optimized in the first quarter, and profits were released with high quality. Among them, total game traffic resumed growth in Q1, and new game launches+delayed release of old games will drive a recovery in Q2. However, advertising products such as video accounts are growing rapidly, and advertising effectiveness is benefiting from the upgrading of AI technology platforms. Therefore, the Guojin Securities team expects the company's 2024/2025/2026 NON-IFRS net profit to be 2043/2289/256.9 billion yuan, respectively, maintaining the “buy” rating.

Brief performance review

On May 14, 2024, the company disclosed the 2024 first quarter results announcement. 2024Q1 achieved revenue of 159.5 billion yuan, +6% year-on-year, and NON-IFRS net profit of 50.3 billion yuan, +54.5% year-on-year.

Management analysis

Gross margin has been greatly optimized, and profits have been released with high quality. 2024Q1's NON-IFRS net profit of 50.3 billion yuan exceeded agreed expectations, mainly driven by an increase in gross profit. The gross margin reached 52.58%, +7.1 pct year over year, and +2.6 pct month-on-month. The gross profit margin of value-added services was 57.26%, +3.39pct year on year, mainly driven by the increase in subscription service revenue and the increase in the share of small game revenue in the high-margin business; the gross profit margin of advertising business was 54.78%, +13.09pct year on year, mainly driven by revenue growth in high-profit businesses such as video accounts and search and search. The gross profit margin for fintech and corporate services was 45.6%, +11.1pct year on year, mainly driven by the increase in the share of revenue from high-margin financial management services and the implementation of corporate service cost reduction and efficiency results.

Gaming: As energy is being accumulated, total game traffic will resume growth in Q1. The launch of new games and the delayed release of old games will drive Q2 to pick up. 2024Q1's gaming revenue was 48.1 billion yuan, up -0.4% year over year. Local game market: 24Q1 turnover increased 3% year over year, revenue was 34.5 billion yuan, -1.7% year over year. The “DNF” mobile game will be launched on May 21, and is expected to contribute additional volume to the game's revenue growth. International market game: 24Q1 turnover increased 34% year on year, revenue of 13.6 billion yuan, +3% year over year. Supercell's long deferral cycle led to a slowdown in revenue growth, providing strong support for the subsequent quarter. Deferred revenue from 2024Q1's current liabilities reached $106.1 billion, an increase of $19.9 billion over the previous year.

Advertising: Advertising products such as video numbers are growing rapidly, and advertising effectiveness is benefiting from the upgrading of AI technology platforms. 2024Q1's advertising revenue was 26.5 billion yuan, +26% over the same period. Among them, video channel advertising revenue increased 100% + and applet advertising revenue increased 40% +. From an industry perspective, advertising expenses in consumer goods industries such as games and Internet services increased significantly. The total length of video channels increased by 80% + year over year, and there is still plenty of room for commercialization.

Fintech and corporate services: Financial services are growing strongly, and video e-commerce is driving the growth of corporate services. 2024Q1's fintech and corporate services revenue reached $52.3 billion, +7% year over year. 1) Fintech: Single-digit revenue growth, rapid growth in wealth management business users and per capita investment; 2) Enterprise services: double-digit revenue growth, mainly driven by increases in technical service fees for cloud and video merchants.

Profit Forecasts, Valuations, and Ratings

We expect the company's 2024/2025/2026 NON-IFRS net profit to be 2043/2289/256.9 billion yuan, respectively. The current stock price corresponds to PE of 16.01 /14.29/12.73X, maintaining a “buy” rating.