股

票

研 [Table_Title] Jason Zhou 周桓葳 Company Report: Tencent (00700 HK) 究 (852) 2509 5347 EquityResearch 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

CompanyReport 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

EquityResearch 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 1 个月 3 个月 1 年

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 InternetSector

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 August2019 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 August2019 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. Non-GAAP shareholders’ profit was in line with our expectation. On the revenue side, the Company's total revenue was below our expectation by 4.6%, mainly due to lower-than-expected revenue growth of PC client games. VAS business grew 14.3% yoy, almost the same as the same period last year, mainly driven by strong growth of smartphone games, up 26.1% yoy. However, revenue of PC client games was below our expectations, with 9.3% yoy decline, which partially offset growth of smartphone

games. Revenue of online advertising was lower than our expectations by 4.7%, with second quarter growth having slowed to 16.3%. Media advertising dropped by 7.0% yoy, mainly due to unexpected delays in airing certain top-tier drama series and the absence of the FIFA World Cup compared with last year same period, which resulted in less sponsorship advertising revenues.

Financial technology and corporate services were in line with our expectations, with 37.3% yoy growth. Within FinTech Services, (00700 HK) commercial payments grew rapidly in terms of users, merchants, transaction volume and revenues, driving segment revenue growth. As for Business Services, cloud revenues grew robustly yoy as the Company expanded its sales team and product offerings to sign up more key accounts and large contracts. On the cost side, gross profit margin decreased yoy and qoq by 2.7 腾讯控股 ppts and 2.5 yoy, respectively, to 44.1%. On the other hand, due to effective cost control, S&M expenses fell 25.8% yoy to

RMB4.72 billion. In terms of profit, shareholders' net profit increased by 35.1% in the second quarter, mainly due to 1) efficient Tencent cost control and 2) gains from associates and joint ventures. Non-GAAP shareholders' net profit increased by 19.3% yoy. WeChat MAU increased by 7.1% yoy to 1,132.7 million. The decreasing growth was mainly due to the impact of high base of last year same period.

Report

Company

See the last page for disclaimer Page 3 of 13 [Table_PageHeader] Tencent (00700 HK)

Table-1: Tencent’s Income Statement Analysis

RMB ] 1 r a M t h g i R _ e l b a T [ 2Q19 2Q18 yoy 1H19 1H18 yoy Comments (Million)

Total revenue 88,821 73,675 20.6% 174,286 147,203 18.4% -VAS revenue 48,080 42,069 14.3% 97,054 88,946 9.1% Mainly reflected growth in revenues from smartphone

games as well as from digital 26 August2019 content services such as live broadcast services and video streaming subscriptions. - Online 16,409 14,110 16.3% 29,786 24,799 20.1% Benefiting from greater advertising advertising revenue revenue contributions from Weixin Moments and QQ KanDian. - FinTech and 22,888 16,666 37.3% 44,677 31,848 40.3% Primarily driven by revenue Business Services growth from commercial payment and cloud services,

] 2 r a M t h g i R _ e l b a T [ partially offset the absence of interest income after transferring custodian cash balances to the People's Bank of China. -Others 1,444 830 74.0% 2,769 1,610 72.0% Cost of revenue (49,695) (39,229) 26.7% (95,340) (75,715) 25.9% Greater content costs, costs of FinTech services and

channel costs.

Gross profit 39,126 34,446 13.6% 78,946 71,488 10.4%

Interest income 1,652 1,072 54.1% 3,060 2,137 43.2% (00700 HK) Other gains, net 4,038 2,506 61.1% 15,127 10,091 49.9% S&M expenses (4,718) (6,360) (25.8%) (8,962) (11,930) (24.9%) Internal initiatives to reduce

less effective marketing 腾讯控股 campaigns. G&A expenses (12,577) (9,857) 27.6% (23,908) (19,287) 24.0% Tencent

Operating profit 27,521 21,807 26.2% 64,263 52,499 22.4% Greater R&D expenses and staff costs. Finance costs, net (1,982) (1,151) 72.2% (3,099) (1,805) 71.7%

Profit before tax 27,909 22,182 25.8% 60,577 51,901 16.7% Shareholders’ 24,136 17,867 35.1% 51,346 41,157 24.8%

profit Non-GAAP 23,525 19,716 19.3% 44,455 38,029 16.9% Shareholders’ profit EPS (RMB) 2.550 1.893 34.7% 5.427 4.363 24.4%

Gross profit 44.1% 46.8% (2.7ppt) 45.3% 48.6% (3.3ppt)

margin Report Non-GAAP net 26.5% 26.8% (0.3ppt) 25.5% 25.8% (0.3ppt)

profit margin

Source: the Company, Guotai Junan International.

Company

See the last page for disclaimer Page 4 of 13 [Table_PageHeader] Tencent (00700 HK)

We have revised down FY19/ FY20 revenue growth of online games by 5.1%/ 0.4%, respectively, due to expected weak

performance of Tencent PC client games. However, we have revised up FY21 growth] 1 ofr onlinea M t gamesh g i by R 0.6%_ e duel b toa T [

expected recovery of Tencent's PC client games growth. Online games revenues grew 8.4% yoy in 2Q19, mainly due to revenue growth from smartphone games, up 26.1% yoy. However, growth of smartphone games was partially effected by the shrinking of PC client games growth. PC client games was down 9.3% yoy and 15.2% qoq. The qoq decrease was mainly due to weak seasonality. We believe that Tencent's revenue growth of smartphone games will further rally in 2H19, mainly due to 1) negotiations surrounding the domestic Android Play Store for the Company’s mobile titles revenue take from 50% to 70%; 2) steady performance of the main existing titles in 2Q19, such as Perfect World; 3) strong pipeline of games in 3Q19 and 4) 26 August2019 deferral recognition of online games revenue. More specifically, we made a comparison between 2Q18 and 2Q19 in terms of new releasing Tencent games on top 10 iOS gross billing chart in China. We found that 6 new games appeared on the chart in 2Q19 but no new games in 2Q18. According to our analysis, we estimate yoy growth of Tencnet's smartphone games in 3Q19 to be 28.1%. However, compared with expected strong growth of smartphone games, we are negative towards PC client games in the following quarters due to the following reasons: 1) in terms of the PC games industry, we believe that PC client games players are expected to continue to shift to smartphone games because of the diversified range of games on mobile platforms; 2) in terms of Tencent PC game titles, we believe that the Company does not have as strong of a pipeline as that of smartphone games. Therefore, we believe that PC client games will partially drag down online games revenue growth in FY19-FY20.

Outperforming Games in 2Q19 ] 2 r a M t h g i R _ e l b a T [

i) Peacekeeper Elite (和平精英): Data from Sensor Tower showed that Tencent's gross billing from mobile battle royale titles reached US$860 million, excluding spending YTD 2019 by Chinese consumers within the Android version of Peacekeeper Elite. Excluding Android revenue from China, PUBG and Peacekeeper Elite generated an estimated US$167 million in player spending during July, which represented an increase of 748% yoy from approximately US$46 million during last July, according to Sensor Tower Store Intelligence data. According to our observations, the game maintained top 3 in China’s iOS gross billing chart for most of the time since its launch in May. The game exceeded 50 million DAU since its release in May and begun monetization with a successful season pass offering. We believe that the expected strong cash flow in 2Q19 should substantially transfer as revenue in the financial statements in the following quarter this year due to the deferral income policy.

ii) Perfect World Mobile (完美世界手游) (00700 HK) Perfect World Mobile maintained outstanding performance and ranked within China's top 10 iOS grossing chart in 2Q19. We believe that the game contributed substantially to its 2Q19 revenue. However, we believe that the game's gross billing in 2Q will

further be recognized in 3Q due to the deferral income policy. 腾讯控股

We believe that Tencent has further enriched its games portfolio, which is expected to have diversified games Tencent contribution in 2H19. In July, the Company released three smart phone games in different game genres, including racing game KartRider Rush, strategy game Game of Thrones: Winter is Coming, and RPG Dragon Raja. According to our observations, those games were all ranked in China's top 10 iOS grossing Chart for games in China in July. We found that Tencent's cash flow of online mobile games has gradually reduced its reliance on Honour of Kings. We have selected 5 popular Tencent games from the iOS rankings table, including Honour of Kings, a MOBA game; Peacekeeper Elite an FPS game; Kartrider Rush, in Car Racing; and Perfect World Mobile and Dragon Raja, MMORPGs. We believe that Tencent has diversified its online mobile games revenue via different game categories. According to this, we expect Tencent’s online mobile games could cover more different type of players and increase user play time. Therefore, we believe Tencent's online game revenue is expected to further rebound in 2H19.

Table-2: Tencent's Top Performing Online Mobile Games in July 2019

Ranking Games Genre Game Developer

1 Honour of Kings (王者荣耀) MOBA Tencent

2 Peacekeeper Elite (和平精英) FPS Youzu Report

3 Perfect World Mobile (完美世界手游) MMORPG Perfect World

4 Dragon Raja (龙族幻想) MMORPG Zulong Company 5 Kartrider Rush （跑跑卡丁车） Car Racing Tiancity Source: QiMai Data, Guotai Junan International. See the last page for disclaimer Page 5 of 13 [Table_PageHeader] Tencent (00700 HK)

Table-3: Expected Tencent 3Q19 Game Pipeline

] 1 r a GameM t Developerh g i R _ e l b a T [ Ranking Grossing Games Genre

1 Kartrider Rush （跑跑卡丁车） Car Racing Tiancity

2 Game of Thrones: Winter is Coming （权力的游戏：凛冬降至） Strategy Youzu 3 DnF Mobile (2D) （地下城与勇士） ARPG Tencent 4 Dragon Raja （龙族幻想） RPG Zulong

5 Ace Force （王牌战士） FPS Tencent 26 August2019 6 ReEvolve （我的起源） Sandbox Perfect World 7 Lego Mobile （乐高无限） Sandbox Tencent/Lego

8 The Outcast （一人之下） ARPG Tencent 9 Fox Spirit Matchmaker （狐妖小紅娘） MMO/ACG Tencent Source: The Company, Guotai Junan International.

Table-4: Top 10 Highest Income Mobile Games in China Market in 1H19 Ranking Grossing Games Game Operators 1 Honour of Kings (王者荣耀) Tencent

] 2 r a M t h g i R _ e l b a T [

2 Fantasy of Westward Journey (梦幻西游) NetEase 3 Perfect World Mobile (完美世界手游) Tencent 4 QQ Speed (QQ 飞车) Tencent 5 Peacekeeper Elite (和平精英) Tencent 6 Onmyoji (阴阳师) NetEase 7 Westward Journey (大话西游) NetEase 8 King of Chaos(乱世王者) Tencent

9 All this Land (率土之滨) NetEase

10 QQ Dancer (QQ 炫舞) Tencent Source: CNG, Guotai Junan International.

(00700 HK)

Figure-5: Tencent’s Online Games Business Revenue and Figure-6:Tencent’s Revenue of Smartphone Games and PC

yoy Growth Client Games and yoy Growth 腾讯控股

Revenue of Smart phone games Revenue of PC client games RMB (Million) - Online games yoy Smart phone games YoY PC client games YoY RMB (Million)

180,000 50% 160,000 30% Tencent 25.8% 23.9% 136,831 160,000 153,484 140,000

40% 140,000 134,654 20.7% 38.2% 120,000 118,100 20% 15.9% 120,000 114,222 103,992 100,000 93,878 97,883 30% 100,000 77,800 9.4% 80,000 10% 80,000 62,800 20% 17.9% 60,000 55,100 2.3% 52,324 60,000 50,600 46,755 47,830 14.0% 40,000 0% 40,000 9.8% 10% 6.2% 20,000 20,000 -8.2% -7.6%

0 0% 0 -10% 2017A 2018A 2019F 2020F 2021F 2017A 2018A 2019F 2020F 2021F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Report

We have revised down online advertising revenue for FY19-FY21 by 8.5%/ 6.4%/ 6.7%, respectively due to expected macro headwinds. 2Q19 online advertising revenue growth slowed to 16.3% yoy, 22.7 ppt lower than that of last year same

period, dragged by the drop in media advertising. Growth of social and others advertising slowed to 28.0% yoy, mainly due to

Company the impact of macro weakness. Media advertising yoy growth declined 7.0% due to the absence of the FIFA World Cup tournament. We believe that Tencent’s online advertising is expected to be under pressure in the following quarters this year See the last page for disclaimer Page 6 of 13 [Table_PageHeader] Tencent (00700 HK)

due to the following factors: 1) advertisers are expected to be more cautious on marketing spend under the economic downturn;

2) advertising price is expected to be under pressure due to increasing supply of short video] 1 advertisingr a M t h inventoriesg i R _ bye peers,l b a T [

such as Biadu, Toutiao. However, in terms of social and others advertising, we believe that the following points could partially offset the adverse effect: 1) Tencent’s online advertising load is generally lower than most of its peers in the internet advertising market; 2) Tencent started to test the third ad slot in moments in 2Q19; 3) Tencent implemented new stimulus packages for mini-program developers onn May 31st. We believe the new stimulus package could encourage more innovative content on mini programs and amplify the WeChat ecosystem. However, in terms of media advertising, we believe that it could be under pressure in following quarters this year due to 1) expected delays to airing certain top-tier drama series; 2) brand advertising is 26 August2019 expected to have more impact than performance advertising under economic headwinds. In the long term, we believe that media advertising will rally due to expected further investment on Tencent’s content development.

Table-5: Cash Receipt from Advertising Sharing Plan for Mini Program Developers Single day cash receipt (million) Innovative Mini Program Cash receipt sharing plan (Tencent) 30% 50% Cash receipt sharing plan (Developers) 70% 50% Ordinary Mini Program

] 2 r a M t h g i R _ e l b a T [

Cash receipt sharing plan (Tencent) 50% 50% Cash receipt sharing plan (Developers) 50% 50% Source: the Company, Guotai Junan International

Figure-7: Tencent’s Online Advertising Business Revenue Figure-8: The Revenue of Media Advertising and Social and and yoy Growth Others Advertising

- Media advertising - Social and others advertising RMB (Million) Online advertising yoy RMB (Million)

120,000 60% 16,000

13,949 14,574

99,666 14,000 100,000 49.9% 50% 12,009 43.6% 12,000 80,724 80,000 40%

9,898 (00700 HK)

10,000 67,713

60,000 58,079 30% 8,000 腾讯控股 40,439 6,000 40,000 20% 4,632 4,772 16.6% 19.2% 23.5% 4,400 4,000 3,479

20,000 10% Tencent 2,000

0 0% 0 2017A 2018A 2019F 2020F 2021F 1Q19 2Q19 3Q19F 4Q19F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

We have revised down yoy growth of Fintech and Business Services for FY19-FY21 by 3.0%/ 10.8%/ 5.6%, respectively. Revenue from FinTech and Business Services increased 37.3% yoy to RMB22.9 billion in 2Q19. Excluding interest income on custodian cash balances, revenue increased 57% yoy. The increase was mainly driven by revenue growth from commercial payments and cloud services. Growth of Fintech services was due to rapid growth of transaction volumes. However, according to Tencent wealth management platform LiCaiTong, customer assets have grown to over RMB800 billion at the end of 2Q19, indicating that users are increasingly keeping their money within the Company's payment system. We believe that this will have

some impact on withdrawal fee revenue. The company is expected to remain focused on risk management of its FinTech business to sustain its long-term growth. For Tencent cloud, the Company has 1) deepened its penetration in small and medium

business through close partnerships with Independent Software Vendors ("ISV") and resellers; 2) further strengthened the cloud

Report based development kits for Mini Programs developers to enable more efficient development process, operations and

maintenance. According to IDC, Tencent has the second largest market share in "IAAS + PAAS" market of 1Q19, with 12.3%

market occupation. Company

See the last page for disclaimer Page 7 of 13 [Table_PageHeader] Tencent (00700 HK)

Figure-9:1Q19 "IAAS+PAAS" Market Share in China Figure-10:Estimated Growth of FinTech and Business Services

] 1 r a M t h g i R _ e l b a T [

Alibaba Group Tencent China Telecom Amozon Web Service Baidu Huawei RMB (Million) FinTech and Business Services yoy Others 250,000 50%

197,517 19.8% 41.6% 200,000 40% 34.5%

150,000 30% 26 August2019 43.0% 139,460 5.2%

103,691 5.2% 100,000 20%

7.2% 50,000 10% 7.3% 12.3% 0 0% 2019F 2020F 2021F

Source: IDC, Guotai Junan International. Source: the Company, Guotai Junan International.

] 2 r a M t h g i R _ e l b a T [ We have revised up operating margins in FY19-FY20 by 2.5ppts and 1.5ppts, respectively, due to expected controlled spending on S&M. Gross margin in 2Q19 was 44.1%, compared to 46.8% in 2Q18 and 46.6% in 1Q19. The yoy and qoq decrease of gross margin was mainly due to 1) higher content costs for services and products including live broadcast and online games as well as greater channel costs for smartphone games; and 2) expanding scale of its FinTech and cloud services. Gross profit margin is expected to be under pressure in the following years due to expected high content cost, as the Company is expected to invest and provide more high quality content. However, we believe that the cost increases would be partially offset by the expected increase in revenue contribution by social and other advertising, which have relatively low cost levels compared with media advertising. In addition, we believe that the Company has efficient cost control in FY2019 and would curb the sales and marketing expenses under the background of economic headwinds. However, marketing expenses are expected

to rally in FY20 to FY21 due to increasing promotion of its payments-related services, online video business and cloud business.

Hence, we have revised down operating margin for FY21 by 0.4 ppts. We estimate FY19-FY21 percentage of selling and marketing expense to total revenue to be 5.1%/ 6.0%/ 7.3%.

(00700 HK)

Figure-11: Tencent's Gross Profit Margin and Operating Figure-12: Tencent's Percentage of Selling and Marketing

Margin Expense to Total Revenue 腾讯控股

Operating margin Gross margin Selling and marketing expenses to total revenue

60% 9% Tencent

7.7% 8% 7.4% 7.3% 50% 49.2% 45.5% 44.3% 43.8% 43.5% 7% 6.0% 40% 38.0% 6% 33.9% 5.1% 31.2% 5% 30.5% 29.3% 30% 4%

20% 3%

2% 10% 1%

0% 0% 2017A 2018A 2019F 2020F 2021F 2017A 2018A 2019F 2020F 2021F

Source: the Company, Guotai Junan International. Source: the Company, Guotai Junan International.

Report

Company

See the last page for disclaimer Page 8 of 13 [Table_PageHeader] Tencent (00700 HK)

Profit Revision

] 1 r a M t h g i R _ e l b a T [

We have revised up FY19-20 Basic EPS by 5.8%/ 2.1%, due to expected efficient cost control in FY19. We believe in the short to medium term, Tencent's online advertising would be further under pressure mainly due to the macroeconomic headwinds. Revenue of smartphone games is expected to further rally in 2H19. However, the rebound is expected to be partially offset by the decline in PC client games, which is expected to rally in 2H20. We expect online advertising to be rebound in 2020F and 2021F due to expected release of advertising space and expected economic improvement. On the other hand, due to expected efficient cost control in FY19 and FY20, we believe that operating margins will be further improved. 26 August2019

Table-6: Financial Estimations Revisions

OLD NEW CHANGE RMB (Million) 2019F 2020F 2021F 2019F 2020F 2021F 2019F 2020F 2021F

Total revenue 397,612 502,240 626,127 380,273 470,974 583,907 (4.4%) (6.2%) (6.7%) - VAS revenue 213,887 245,715 278,836 202,994 244,737 280,453 (5.1%) (0.4%) 0.6% - Advertising 71,030 91,975 127,115 67,713 80,724 99,666 (4.7%) (12.2%) (21.6%) revenue - FinTech and

] 2 r a M t h g i R _ e l b a T [

106,891 156,323 209,167 103,691 139,460 197,517 (3.0%) (10.8%) (5.6%) Business Services Net Profit 99,965 115,437 145,573 105,721 117,912 138,092 5.8% 2.1% (5.1%)

EPS (RMB) 10.550 12.142 15.250 11.157 12.402 14.467 5.8% 2.1% (5.1%) Source: Guotai Junan International.

Valuation

With expected efficient cost control, we believe that the slowdown in advertising growth will have limited impact on the margin. In the long term, we believe that the Company will start to the increase selling and marketing expense in order to promote FinTech and Business services; we maintain investment rating as "Buy" but revise down TP as HK$375.00. Without the game policy uncertainty and the strong online smartphone game pipeline, we believe that the Company's smartphone

games business will rebound in 2H19, but to be affected by the decline in PC client games. The new TP implies 27.8x FY19 (00700 HK)

PER, 25.0x FY20 and 21.4x FY21 PER.

Figure-13: Tencent’s PE Graph Figure-14: Tencent’s PER Range 腾讯控股

Forward P/E Avg max min avg 60.0 (x) +1 S.D. -1 S.D. (x) 60.00 +2 S.D. -2 S.D. 52.63 Tencent 50.0 50.00 43.80 44.07 43.00 40.0 40.07 39.58 38.30 38.25 40.00 35.6535.24 36.91 30.0 33.09 30.96 31.05 34.57 31.43 31.37 30.00 33.08 29.7632.65 20.0 25.97 25.75 27.38 26.18 25.91 26.73 26.69 20.00 25.00 21.47 10.0 19.94 17.21 0.0 10.00

0.00

11 12 13 15 16 17 18 19

14 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- Aug- YTD

Source: Bloomberg. Source: Bloomberg.

Report

Company

See the last page for disclaimer Page 9 of 13 [Table_PageHeader] Tencent (00700 HK)

Table-7: Peers Comparison PER (x) PBR (x) P/S PEG Market Cap

] 1 r a M t h g i R _ e l b a T [ Local currency Company Ticker Currency Price 19F 20F 21F 19F 20F 21F 19F 19F-21F (million)

US Online Game Companies

Changyou CYOU US USD 5.980 3.1 3.2 3.1 n.a. n.a. n.a. 0.7 (23.9) 318

Electronic Arts Inc EA US USD 92.910 27.7 20.2 18.2 5.2 4.2 3.6 6.2 1.8 27,381

Activision Blizzard Inc ATVI US USD 47.330 21.8 18.9 16.3 2.9 2.6 2.3 5.7 1.4 36,303

Netease NTES US USD 247.230 20.8 19.0 16.7 4.6 3.9 3.4 2.9 1.8 31,636

Simple Average 18.3 15.3 13.6 4.2 3.6 3.1 3.9 (4.7) 26 August2019 Weighted Average 23.1 19.3 16.9 4.1 3.5 3.0 4.9 1.5

HK Online Game Companies

Kingsoft Corp Ltd 3888 HK HKD 13.400 n.a. 26.5 24.5 1.3 1.3 1.2 2.1 n.a. 18,395 Forgame Holdings Ltd 484 HK HKD 4.670 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 744

Linekong Interactive Group C 8267 HK HKD 0.700 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 258

Idreamsky Technology Holding 1119 HK HKD 4.520 8.6 7.2 6.3 1.6 1.3 n.a. 1.5 0.5 5,739

Tencent 700 HK HKD 326.000 29.8 24.5 20.4 6.4 5.1 4.1 7.4 1.4 3,114,985

Boyaa Interactive Int. 434 HK HKD 1.260 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 910

Fingertango Inc 6860 HK HKD 0.770 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1,487

Leyou Technologies Holdings 1089 HK HKD 2.060 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 6,348

Fire Rock Holdings Ltd 8345 HK HKD 5.590 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1,789

] 2 r a M t h g i R _ e l b a T [ Digital Hollywood Interactiv 2022 HK HKD 0.135 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 270

Ourgame International Holdin 6899 HK HKD 0.710 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 776

Baioo Family Interactive Ltd 2100 HK HKD 0.460 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 1,283

Feiyu Technology Internation 1022 HK HKD 0.198 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 306

IGG 799 HK HKD 5.210 5.5 5.2 4.8 2.2 1.7 1.4 1.1 0.7 6,647

Zengame Technology Holding 2660 HK HKD 0.810 n.a. n.a. n.a. n.a. n.a. n.a. n.a. n.a. 828

Netdragon 777 HK HKD 19.160 12.7 10.6 10.3 1.8 1.6 1.6 1.5 1.1 10,164

Simple Average 14.1 14.8 13.2 2.7 2.2 2.1 2.7 1.0

Weighted Average 29.7 24.4 20.3 6.4 5.1 4.1 7.3 1.4

Advertising Companies

Momo Inc-Spon Adr MOMO US USD 31.830 12.3 10.5 9.1 2.8 2.0 1.5 2.9 0.8 6,600

Bilibili Inc-Sponsored Adr BILI US USD 14.700 n.a. n.a. 62.8 4.4 4.8 4.4 5.2 n.a. 4,794

Sohu.Com Inc SOHU US USD 10.590 n.a. n.a. n.a. 1.0 1.8 3.6 0.2 n.a. 415

Weibo WB US USD 39.620 14.6 12.8 11.0 3.7 2.9 2.4 4.9 1.0 8,916

Bitauto BITA US USD 11.160 8.2 6.5 5.7 0.4 0.4 0.4 0.5 0.4 783 (00700 HK)

Cheetah Mobile CMCM US USD 3.900 20.9 17.5 8.3 0.7 0.6 n.a. 0.9 0.4 559

58.com WUBA US USD 52.050 19.2 15.4 13.3 2.2 2.0 1.8 3.5 1.0 7,739

Soufun SFUN US USD 1.720 n.a. 1.6 n.a. n.a. n.a. n.a. 0.6 n.a. 165 腾讯控股

Phoenix New Media FENG US USD 3.100 n.a. n.a. 258.3 0.3 0.3 0.3 0.9 n.a. 226

Sina SINA US USD 40.190 16.7 13.6 10.9 0.8 0.8 0.7 1.3 0.7 2,788

Facebook FB US USD 177.750 20.0 16.0 13.7 5.1 4.0 3.1 7.2 1.0 507,112 Tencent

Simple Average 16.0 11.7 43.7 2.1 2.0 2.0 2.6 0.7

Weighted Average 19.7 15.8 14.1 4.9 3.9 3.1 7.0 1.0

E-commerce Companies

Pinduoduo Inc-Adr PDD US USD 29.490 n.a. 59.1 24.2 15.1 13.2 9.1 8.3 n.a. 34,278

Alibaba* BABA US USD 164.540 30.9 24.4 19.4 5.8 4.7 3.9 8.4 0.9 428,392

VIPSHOP VIPS US USD 7.850 9.7 8.3 7.7 1.7 1.4 1.2 0.4 0.8 5,241

EBay EBAY US USD 38.700 14.1 12.5 11.1 11.8 9.6 7.7 3.0 1.1 32,460

JD.com JD US USD 28.770 34.3 24.5 18.0 4.0 3.6 3.0 0.5 0.9 41,831

AMAZON MZN US USD 1749.620 53.1 39.7 28.0 14.7 10.4 7.5 3.1 1.4 865,460

Simple Average 28.4 28.1 18.1 8.9 7.1 5.4 3.9 1.0

Weighted Average 44.5 34.3 24.6 11.6 8.5 6.3 4.7 1.2

Search Engine Companies

Sogou Inc-Adr SOGO US USD 4.140 21.3 16.6 15.1 1.5 1.4 1.3 1.4 1.1 1,644

Alphabet Inc-ClA GOOGL US USD 1153.580 18.9 18.3 15.2 3.9 3.2 2.7 6.0 1.6 799,042

Baidu Inc - Spon Adr BIDU US USD 101.850 23.6 16.2 11.9 1.5 1.4 1.2 2.3 0.6 35,499 Report Simple Average 21.3 17.0 14.0 2.3 2.0 1.7 3.3 1.1

Weighted Average 19.1 18.2 15.1 3.8 3.2 2.6 5.9 1.6

Overall Average 19.6 17.4 20.6 4.0 3.4 2.9 3.3 (0.2) Company Overall Weighted Average 27.4 22.5 18.3 6.2 4.8 3.8 5.9 1.4 Source: Bloomberg. Notes: * represents figures of FY19/FY20/FY21 See the last page for disclaimer Page 10 of 13 [Table_PageHeader] Tencent (00700 HK)

Table-8: Technical Terms Glossary

定义 ] 1 r a M t h g i R _ e l b a T [ Abbreviation Definitions

ACG Advanced Casual Game 高级休闲游戏

ARPG Action Role Playing Game 动作角色扮演类游戏 ARPU Average Revenue Per User 平均每月用户收入 DAU Daily Active User Accounts 日活跃用户数

DnF DnF Mobile 地下城与勇士 26 August2019 FPS First Person Shooting 第一人称射击游戏 IAAS Infrastructure as a Service 基础即服务 LOL League of Legends 英雄联盟 MCG Mini Casual Game 小型休闲游戏 MMO Racing Massive Multiplayer Online Racing 大型多人在线赛车游戏 MMOFPS Massive Multiplayer Online First-Person Shoot 大型多人在线第一人称射击游戏 MMOG Massive Multiplayer Online Game 大型多人在线游戏

MMORPG Massive Multiplayer Online Role-Playing Game 大型多人在线角色扮演] 2 r 游戏a M t h g i R _ e l b a T [

MMORTS Massive Multiplayer Online Real-Time Strategy 大型多人在线实时战略游戏 MOBA Multiplayer Online Battle Arena 多人在线战术竞技游戏 PAAS Platform as a Service 平台即服务 RPG Role-Playing Game 角色扮演游戏 SAAS Software as a Service 软件即服务 SNS Social Network Site 社交网站 VAS Value-Added Services 增值服务

Source: the Company, Guotai Junan International.

(00700 HK)

腾讯控股 Tencent

Report

Company

See the last page for disclaimer Page 11 of 13 [Table_PageHeader] Tencent (00700 HK)

Financial Statements and Ratios

[Table_IncomeStatement] [Table_BalanceSheet] ] 1 r a M t h g i R _ e l b a T [ Income Statement Balance Sheet

Year end 31 Dec (RMB m) 2017A 2018A 2019F 2020F 2021F Year end 31 Dec (RMB m) 2017A 2018A 2019F 2020F 2021F

VAS 153,983 176,646 202,994 244,737 280,453 Fixed Asset 31,871 47,076 61,054 72,444 80,865

Online advertising 40,439 58,079 67,713 80,724 99,666 Intangible assets 40,266 56,650 66,691 85,287 87,361

FinTech and Business Services 0 0 103,691 139,460 197,517 Investment in JCE & associates 121,605 227,790 257,220 254,556 261,705

Others 43,338 77,969 5,875 6,052 6,271 Available-for-sale financial assets 127,218 0 0 0 0 26 August2019 Total Revenue 237,760 312,694 380,273 470,974 583,907 Financial assets at FV via P&L 0 91,702 110,042 143,055 185,972

Cost of revenues (120,835) (170,574) (211,897) (264,659) (330,083) Financial assets at FV via OCI 0 43,519 72,677 94,480 122,824

Gross profit 116,925 142,120 168,375 206,315 253,825 Deferred income tax assets 9,793 15,755 17,331 19,064 20,970 Prepayments, deposits and other 11,173 21,531 27,990 29,390 30,859 Interest Income 2,619 3,940 4,569 6,447 7,995 Others 34,300 2,418 3,787 4,157 3,518

Other gains, net 20,140 16,714 25,426 16,360 25,767 Total Non-current Assets 376,226 506,441 616,792 702,432 794,073

S&M (17,652) (24,233) (19,573) (28,324) (42,774)

G&A (33,051) (41,522) (51,883) (58,650) (75,754) Accounts receivable 16,549 28,427 34,952 40,404 46,101

Operating Profit 90,302 97,648 128,792 143,696 171,007 Other receivables 17,110 18,493 24,041 25,243 26,505

Finance cost, net (2,908) (4,669) (6,680) (8,470) (10,546) Cash & Cash Equivalents 105,697 97,814 152,501 203,002 245,637

Share of associate / JC 821 1,487 1,636 2,290 2,519 Term deposits 36,724 62,918 70,222 75,051 86,038

Profit Before Tax 88,215 94,466 123,748 137,517 162,980 Others 2,366 9,428 4,569 5,421 6,480

] 2 r a M t h g i R _ e l b a T [ Income Tax (15,744) (14,482) (15,704) (17,323) (20,855) Total Current Assets 178,446 217,080 286,284 349,121 410,761

profit After Tax 72,471 79,984 108,043 120,193 142,125

Non-controlling Interest (961) (1,265) (2,322) (2,281) (4,034) Total Assets 554,672 723,521 903,076 1,051,553 1,204,834

Shareholders' Profit / Loss 71,510 78,719 105,721 117,912 138,092

Basic EPS 7.598 8.336 11.157 12.402 14.467 Accounts payable 50,085 73,735 67,530 83,704 77,312

Short term borrowings 15,696 26,834 28,176 29,584 31,064 Accrued exp. & other payables 29,433 33,312 39,929 49,452 61,310

[Table_CashFlowStatement]Cash Flow Statement Note payable 4,752 13,720 15,092 16,601 18,261

Deferred revenue 42,132 42,375 51,533 53,824 56,731

Year end 31 Dec (RMB m) 2017A 2018A 2019F 2020F 2021F Others 9,642 12,459 12,511 12,567 12,624

Profit after taxation 72,471 79,984 108,043 120,193 142,125 Total Current Liabilities 151,740 202,435 214,771 245,733 257,303

Depreciation & Amortisation 23,611 34,248 42,233 55,485 68,084

Changes in working capital 23,663 4,896 (2,529) 21,290 1,348 Notes payable 29,363 51,298 87,207 91,567 96,145

Income tax paid (13,862) (14,521) (25,027) (31,923) (36,884) Long term borrowings 82,094 87,437 96,814 106,496 117,145

Others Deferred income tax liabilities 5,975 10,964 11,890 13,115 15,789 (00700 HK)

257 1,836 8,669 13,276 13,420

Cash from Operating Activities 106,140 106,443 131,390 178,320 188,093 Deferred revenue 2,391 7,077 8,606 10,659 13,215

Others 6,016 8,103 8,583 9,110 9,691

CAPEX (31,958) (51,620) (64,067) (72,488) (78,429) Total Non-current Liabilities 125,839 164,879 213,099 230,947 251,985 腾讯控股

Financial assets purchases (43,697) (1,778) (471) (978) (1,076)

Associates & JV investments (39,879) (39,699) (14,036) (10,956) (21,107) Total Liabilities 277,579 367,314 427,870 476,680 509,288 Tencent Financial for sale investments 13,646 (20,828) (7,304) (4,829) (10,987) Share premium 18,234 23,121 28,163 18,113 8,933 Change of FA at FV via OCI 0 4,555 (29,158) (21,803) (28,344) Other reserves 35,158 729 16,038 16,038 16,038

Change of FA at FV via P&L 0 (42,887) (18,340) (33,013) (42,917) Reserves 202,682 299,660 395,986 503,420 629,241

Others 5,496 344 5,231 (5,703) 9,165 Total Shareholders' Equity 256,074 323,510 440,187 537,572 654,212

Cash from Investing Activities (96,392) (151,913) (128,144) (149,770) (173,694) Minority Interest 21,019 32,697 35,019 37,301 41,334

Total Equity 277,093 356,207 475,206 574,873 695,546

Dividends to shareholders (5,052) (620) (9,394) (10,478) (12,271)

Change in borrowings 29,012 37,842 50,534 15,706 17,051 [Table_FinancialRatio] Others 2,638 (1,842) 5,888 8,115 13,987 Financial Ratios

Cash from Financing Activities 26,598 35,380 47,027 13,344 18,767 2017A 2018A 2019F 2020F 2021F

Gross margin (%) 49.2 45.5 44.3 43.8 43.5

Net Changes in Cash 36,346 (10,090) 50,273 41,895 33,167 Operating margin (%) 38.0 31.2 33.9 30.5 29.3

Cash at Beg of Year 71,902 105,697 97,814 152,501 203,002 Net margin (%) 30.5 25.6 28.4 25.5 24.3

FX change (2,551) 2,207 4,414 8,607 9,468 ROE (%) 33.2 27.2 27.7 24.1 23.2 ROA (%) 15.2 12.5 13.3 12.3 12.6 Cash at End of Year 105,697 97,814 152,501 203,002 245,637

Source: the Company, Guotai Junan International.

Report

Company

See the last page for disclaimer Page 12 of 13 [Table_PageHeader] Tencent (00700 HK)

Company[Table_CompanyRatingDefinition] Rating Definition

The Benchmark: Hong Kong Hang Seng Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable.

Neutral 中性 Relative Performance is -5% to 5%; 26 August2019 or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [ or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%; Or the fundamental outlook of the sector is unfavorable.

[Table_DISCLOSUREOFINTERESTS]DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for KAISA GROUP (01638 HK),GUOTAI JUNAN I (01788 HK),JXR (01951 HK),BANK OF GANSU (02139 HK),JINSHANG BANK (02558 HK),ZHONGLIANG HLDG (02772 HK),BINHAI INVESTMENT (02886 HK),CAM SCSMALLCAP (03157 HK),HAITIANTIAN (08227 HK),Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months.

(5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research (00700 HK) Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

腾讯控股

DISCLAIMER Tencent

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision.

This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

© 2019 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. Report

27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793

Website: www.gtja.com.hk

Company

See the last page for disclaimer Page 13 of 13