核心业务稳固；对电子商务和人工智能的长期发展持乐观态度

Solid core businesses; upbeaton long-termdevelopment of e-commerce and AI Target PriceHK$525.00Up/Downside34.7%Current PriceHK$389.80 We expect Tencentwill continueto deliver solid earnings performance in 4Q24,driven by strong games revenue growth and resilient marketing business. Weforecasttotal revenue to grow by 8% YoY to RMB167.6bn(in line withconsensus) and non-IFRS net income to grow by 29% YoY to RMB55.2bn (5%ahead ofconsensus) in 4Q24. On 17 January, we hosted an NDR withTencent’s managementin Beijing andour keytakeawayissummarizedbelow.After the NDR,we are more positive onTencent’slong-term growth initiativeslike Weixin e-commerce and AI. We maintain our FY24-26Eforecastslargelyunchanged. Our SOTP-derived TP is unchanged at HK$525.0. Maintain BUY. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Expect a strong 4Q24E.Looking into 4Q24, we estimategames revenueto grow by 17% YoY (3Q24/2Q24: +13/9% YoY), withdomestic/overseasgames revenue up by 19/11% YoY. The further acceleration was primarilydriven by new titles likeDnF MobileandDeltaForce,aswell asrecognitionofstrong overseas games receipt. We forecast marketing revenue toincrease by 12% YoY in 4Q24 and continue to outperform peers amid macrouncertainty, thanks to the ad tech advancement and increasing ad load. Forthe FBS business, the soft consumption sentiment still weighs on the fintechbusiness and we estimate FBSrevenueto grow by 2% YoY in 4Q24. Onthe margin front, we expect margin expansion to sustain and non-IFRS NPMto improve by 5pptsYoY to 32.9% in 4Q24, fuelled by solid growth of higher-margin games and marketing businesses. Ye TAO, CFAfranktao@cmbi.com.hk Joanna Ma(852) 3761 8838joannama@cmbi.com.hk Stock Data Source: FactSet Key takeaway fromTencent NDR.We hosted Tencent NDR with Beijinginvestorson 17 Jan, during whichTencent’s managementaddressed keyquestions on: 1)Weixin e-commercewill act as a connector to variouspartieswithin the e-commerce ecosystem.Without making heavyinvestment in logistics andpersonnel, Weixin will rely on 3rdparty serviceproviders and technology to offer consumers and merchantswithqualityproducts and services.Managementismore positive on the e-commercebusinessas it is now led by Weixin team, which has strong productdevelopment capabilityandefficiency(recent launch of gifting function is avivid example). Weixin aims to create incremental demand by reducingtransaction frictions, instead of taking market share from competitors viasubsidy or aggressive pricing; 2)AIremains as a key growth driver for themarketing business. While capex investmentmaintainedathigh single digit%of total revenue in 2024, Tencent will not invest heavily into useracquisitionof AI applications in view of the relatively low ROI and userretention. That said, Tencent remains positive on maintaining leadership inthe AIcompetitiongiven itsabundantuse cases and large user base; 3)Inclusionin the US CMC (Chinese Military Companies) listwill notaffectthebusiness of Tencent or prohibit investors from transacting in thesecurities ofTencent. And the recent removal of Tencent from the USTR“NotoriousMarketsList”is another positivesign. Shareholding Structure Source: FactSet Maintain BUY.Tencent currently trades at 14x FY25E non-IFRS PE (12x ifexcluding strategic investment), which offers attractivevaluein view ofFY24-26E earnings CAGR (18%), in our view. Maintain BUY. Business forecasts update and valuation Our SOTP-derived target price of HK$525.0comprises, per share: 1) HK$199.9for the games business, based on an18x 2025E PE, which is on par with theaverage PE for its global gaming peers. 2) HK$29.4for the SNS business, including the market cap of Tencent’s stake in itssubsidiaries, the valuation of Tencent Video (based on a 2.5x 2025E PS, at a premium tothe1.8x average PS of its peers given its content and user traffic leadership), and thevaluation of other membership services (based on a 2.0x 2025E PS). 3) HK$110.3for themarketingbusiness, based ona20x 2025E PE,which is at apremiumtothe industry average(17x). Thisreflects Tencent’s moreresilientad revenue growthoutlook, supported by the solid performance of Weixin Video Account and Mini Program. 4) HK$82.5for the fintech business, based on a4.0x2025E PS, at a premium to the peeraverage (2.4x). This mainly reflectsTencent’s strong leadership inChina’s digital paymentmarket and its potential to capture other fintech businessopportunities. 5) HK$22.0for the cloud business, based on a 4.0x 2025E PS, at a discount to the industryaverage (6.0x) as Tencent’s current offerings mainly involve the lower-margin IaaSbusiness. 6) HK$68.4for strategic investments, based on the current market value of Tencent’s listedinvestments and the book value of its unlisted investments. We apply a 30% holdingcompany discount to the fair value of Tencent’s equity investments. 7) HK$12.7for net cash. Our calculationof the valuation of Tencent’s strateg