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Optimizing Cost Control

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Optimizing Cost Control 股 票 研 [Table_Title] Jason Zhou 周桓葳 Company Report: Tencent (00700 HK) 究 (852) 2509 5347 Equity Research 公司报告： 腾讯控股 (00700 HK) [email protected] 26 August 2019 Optimizing[Table_Summary] Cost Control 优化的成本控制 2Q19 shareholders’ profit beat expectations with 35.1% yoy growth due Rating:[Table_Rank] Buy to 1) outstanding cost control and 2) gains from associates and joint Maintained 公 ventures. Non-GAAP net profit grew 14.8% yoy in 2Q19. Gross margin decreased by 2.7 ppt yoy to 44.1% due to greater content costs, costs of 司 评级： 买入 (维持) FinTech services and channel costs. 报 We have revised down FY19-FY20 online games revenue by 5.1% and 6[Table_Price]-18m TP 目标价 : HK$375.00 告 0.4%, respectively, due to expected weak performance of Tencent PC HK$410.00 Company Report games. Smartphone games revenue grew 26.1% yoy in 2Q19, due to strong titles released. However, revenue growth of PC client games declined 11.9% Share price 股价： HK$326.000 yoy and 6.6% qoq, respectively. The qoq decrease was mainly due to weak seasonality effects. Stock performance We have revised down FY19-FY21 online advertising revenue by 8.5%/ 股价表现 6.4%/ 6.7%, respectively. 2Q19 online advertising revenue growth slowed to % of return 16.3% yoy, dragged by the drop in media advertising. With expected efficient 15.0 cost control in FY19, we have revised up operating margin in FY19-20 by 2.5 10.0 ppt/ 1.5 ppt, respectively. 5.0 0.0 We maintain investment rating as "Buy" and revise down TP to 证 (5.0) HK$375.00. Even the Company is expected to maintain its profit momentum 告 (10.0) 券 via cost control; we believe top-line growth will be under pressure. The new (15.0) TP implies 27.8x FY19 PER, 25.0x FY20 PER and 21.4x FY21 PER. 研 报 (20.0) 2019 年 2 季度股东净利润超过预期，同比增长 35.1%，主要由于 1）良好的成本控制和 2） (25.0) 究 究 联营公司及合营公司收益。由于相对高的内容成本、金融科技服务业务成本与渠道费用， (30.0) 报 (35.0) 研 2019 年 2 季度非 GAAP 净利润同比增长 14.8%。毛利润率同比下降 2.7 个百分点至 44.1%。 Aug-18 Nov-18 Feb-19 May-19 Aug-19 告 HSI Index TENCENT 券 我们分别下调 2019 财年至 2020 财年在线游戏收入 5.1%和 0.4%，基于对腾讯个人电脑 Equity Research Report 客户端游戏表现不佳的预测。由于强势新手游的发布，智能手机游戏收入在 2019 财年 2 证 [Tab 季度同比增长 26.1%。然而，个人电脑客户游戏的收入增长同比与环比分别下降 11.9%与 [Table_PriceChange] 6.6%。季环比的下降是由于较差的季节性影响。 Change in Share Price 1 M 3 M 1 Y le_I 股价变动 个月 个月 年 1 3 1 我们分别下调 财年的在线广告收入 。由于受到媒体广告下降 nfo1 2019-2021 8.5%/6.4%/6.7% Abs. % (12.6) (0.4) (8.6) 绝对变动 的拖累，2019 财年 2 季度在线广告收入增长放缓至 16.3%。基于 2019 财年有效成本控制 % ] Rel. % to HS Index 的预期，我们分别上调 2019 财年至 2020 财年经营利润率 2.5 个百分点/1.5 个百分点。 (2.3) 6.5 (0.7) 互 相对恒指变动 % Avg. share price（HK$） 342.8 346.1 333.2 联 我们维持投资评级为“买入”并下调目标价至 375.00 港元。即使公司预计将通过成本控制 平均股价（港元） 网 保持其盈利势头，我们仍认为其收入增长将面临压力。新目标价相当于 27.8 倍 2019 财年 Source: Bloomberg, Guotai Junan International. 行 市盈率、25.0 倍 2020 财年市盈率和 21.4 倍 2021 财年市盈率。 业 Internet Sector Y[Table_ear End Turnover Net Profit EPS EPS PER BPS PBR DPS Yield ROE 年结Profit] 收入 股东净利 每股净利 每股净利变动 市盈率 每股净资产 市净率 每股股息 股息率 净资产收益率 [Tab 12/31 (RMB m) (RMB m) (RMB) (△ %) (x) (RMB) (x) (RMB) (%) (%) le_I 2017A 237,760 71,510 7.598 73.4 36.6 27.210 10.2 0.537 0.2 33.2 2018A 312,694 78,719 8.336 9.7 35.2 34.256 8.6 0.741 0.3 27.2 nfo2 2019F 380,273 105,721 11.157 33.8 26.4 43.709 6.7 0.991 0.3 27.7 中] 2020F 470,974 117,912 12.402 11.2 23.7 54.578 5.4 1.102 0.4 24.1 2021F 583,907 138,092 14.467 16.7 20.3 68.202 4.3 1.286 0.4 23.2 腾外 讯运 [Table_BaseData]Shares in issue (m) 总股数 (m) 9,555.1 Major shareholder 大股东 Naspers Ltd 31.0% 控 输 Market cap. (HK$ m) 市值 (HK$ m) 3,193,314.4 Free float (%) 自由流通比率 (%) 60.1 股 个月平均成交股数 15,607.8 FY19 Net gearing (%) FY19 净负债/股东资金 (%) 20.0 3 month average vol. 3 (‘000) 52 Weeks high/low (HK$) 52 周高/低 (HK$) 400.400 / 251.378 FY19-FY21 PEG 1.2 Tencent (00700 HK) Source: the Company, Guotai Junan International. See the last page for disclaimer Page 1 of 13 [Table_PageHeader] Tencent (00700 HK) Industry Update ] 1 r a M t h g i R _ e l b a T [ We believe that the online mobile games industry in China has been recovering from regulation headwinds. According to CNG, a games research company, China mobile games revenue grew 18.8% yoy in 1H19, 5.9 ppts higher than that in 1H18, reaching RMB75.31 billion. Growth was mainly driven by outperforming revenue from both existing titles and newly released games in 1H19, such as Perfect World operated by Tencent. On the other hand, the total amount of new licensed games approved by the State Administration of Press, Publications, Radio, Film and Television (SAPPRFT) declined from January to July and no new game licenses were approved in May 2019. 12 Tencent games have been approved by the SAPPRFT for new 26 August 2019 game licenses from January to July this year. We expect that the total amount of approved licensed games will decrease compared to that in 2017 due to the enhancing content control levels in licensed game control standards; we believe that the top game companies will be the major beneficiaries due to higher quality game content and strong financial support. Strong China mobile game revenue is expected to rally in 2H19. In addition, we believe with the expected limited new game supply in the following quarters, most game companies are expected to continue to update existing games in order to increase the lifespan of each game and monetization cycle. In terms of the PC game market, China PC game revenue grew 2.3% yoy in 1H19, reaching RMB32.3 billion, which was half that of mobile games in the same period. Figure-1: 1H2019 China Mobile Game and PC Game Sales Figure-2: Amount of Licensed Games Approved by SAPPRFT Revenue ] 2 r a M t h g i R _ e l b a T [ China mobile game sales revenue China PC game sales revenue 2019 Approved Domestic Games 2019 Approved Imported Games Tencent Games Mobile game YoY PC game YoY RMB (Bn) 300 283 279 80.0 90.0% 79.1% 75.3 80.0% 70.0 250 233 70.0% 60.0 67.2% 63.4 60.0% 200 56.1 50.0 49.8% 50.0% 150 40.0 40.0% 37.5 32.0 31.6 32.3 30.0% 30.0 28.1 100 18.8% 26.7 20.0% 20.0 20.9 12.9% 10.0% 4.5% 13.7% 50 40 10.0 30 31 5.2% 0.0% 22 22 23 24 2.3% 3 -1.3% 0 3 0 1 1 0 1 0 1 2 0.0 -10.0% 0 (00700 HK) 1H15 1H16 1H17 1H18 1H19 Jan Feb Mar Apr May Jun July Source: CNG, Guotai Junan International. Source: SAPPRFT, Guotai Junan International. 腾讯控股 The advertising market faced challenges in 1H19, with 8.8% yoy declined due to macro headwinds. Up to 2019 first half, China advertising market dropped by 8.8/% yoy, compared to 9.3% for the preceding same period. Internet advertising dropped Tencent by 4.3% yoy, compared to 5.4% for the preceding same period. We believe the slump in internet advertising growth was mainly due to advertisers optimizing their marketing budget under the economic downturn. According to iResearch, total amount of game advertising increased steadily in 1Q19 but slightly decreased in 2Q19, due to the restart of game license granting but the limited supply of new games. On the other side of the coin, we believe that the game industry is expected to partially support internet advertising market growth due to expected recovery of the industry from policy headwinds. Report Company See the last page for disclaimer Page 2 of 13 [Table_PageHeader] Tencent (00700 HK) Figure-3: Expenses on China Internet Advertising yoy Figure-4: 1H19 Amount of Game Advertising and the Growth Percentage of Game] 1 Advertisingr a M t h ing thei R A_ dvertisinge l b a T [ Industry YoY Changes of expenses in China internet advertising YoY Changes of expenses in China advertising Amount of game advertising 12.0% The percentage of game advertising to the advertising industry 1,800 3.0% 10.0% 9.3% 1,600 2.6% 2.6% 8.0% 2.5% 26 August 2019 2.4% 2.5% 2.3% 1,400 6.0% 5.4% 1.9% 1,200 2.0% 4.0% 1,000 2.0% 1.5% 1,633 800 1,551 0.0% 1,396 1,384 1H18 1H19 600 1,191 1.0% -2.0% 1,097 400 -4.0% 0.5% -4.3% 200 -6.0% 0 0.0% -8.0% Jan.19 Feb.19 Mar.19 Apr.19 May.19 Jun.19 -10.0% -8.8% ] 2 r a M t h g i R _ e l b a T [ Source: CTR Market Research, Guotai Junan International. Source: iResearch, Guotai Junan International. 2Q19 Results Review Tencent’s 2Q19 results were above the market’s and our expectation by 14.4% and 8.5%, respectively.
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