BofA Securities noted in a report that TENCENT (00700.HK) +15.200 (+3.981%) Short selling $2.84B; Ratio 12.187% 's 1Q24 adjusted net profit hiked 54% YoY to RMB50.3 billion, much higher than the consensus estimate of RMB43.0 billion, benefiting from accelerated growth in gross profit and lower operating expenses. Gross margin improved to 53%, higher than the market's forecast of 50%.
Gross profit rose 23% YoY, much faster than revenue growth, thanks to the rapid growth of high-margin revenue streams including Video Account advertisements, WeChat search advertisements, Mini Program gaming platform service fees, wealth management service revenues, e-commerce technology service fees, as well as the improved cost-effectiveness of the long-duration video and cloud businesses.
Based on TENCENT's 1Q results, BofAS slightly raised its gross margin outlook, elevated its adjusted net profit growth forecast for this year from 18% to 24%, and inclined its long-term free cash flow compounded growth rate forecast. The broker lifted its target price on TENCENT from $410 to $480 and maintained its Buy rating.
The broker believed that TENCENT's share price still has room for upside, citing accelerated revenue growth since 2Q24, earnings being in a cycle of beating expectations and upgrading outlooks, and solid market leadership and visibility of profitability expansion. The group also possessed long-term potential and shareholder returns, with a mid-to-double-digit P/E ratio, which is a bargain when compared to the 20%+ adjusted EPS growth.
Short-term catalysts include new games, the sustainability of existing games' recovery and the macro-economy, with downside limited by the company's sizeable buybacks, the broker added.
(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2024-05-16 16:25.)
