Earlier this week, Morgan Stanley published a research report titled "Tencent: A Safe Haven with Catalysts," which pointed out that Tencent is a sound investment option that can provide some protection in the midst of market turmoil.
Gary Yu and other analysts pointed out in the report that Tencent's game business is expected to achieve rapid growth in Q2 this year, becoming a leading indicator of the company's future earnings exceeding expectations.
The team pointed out that Tencent's domestic game business revenue is expected to grow by 10-15% year-on-year in Q2, a significant acceleration from 3% in the same period last year, while the growth rate of the international game business is expected to reach 40-50%, compared with a growth rate of 34% in the same period last year. This strong growth momentum is expected to offset the potential impact of the macro economy on the advertising and payments business.
The report highlighted the outstanding performance of several Tencent's games, including Dungeons & Warriors Mobile (DnFM) and Netherlands mobile game developer Supercell (Tencent has a stake) in Burst Squad.
Dungeons & Warriors Mobile has seen an average daily iOS revenue of 60 million RMB since its launch, while Burst Squad's revenue has increased by 5 to 10 times year-on-year in the second quarter of 2024.
Da Mo believes that Tencent's diversified layout and strategic resource allocation in the game market will help promote the continuous growth of its game business. In addition, Tencent has also demonstrated structural advantages in the early monetization cycle of video accounts, market share growth, and profit margin sustainability.
Based on a 2025 forward price-to-earnings valuation of 13x, Morgan Stanley has set a target price of HK$450 for Tencent's Hong Kong stocks, 25.6% higher than Friday's closing price.
Analysts believe that Tencent's current share price is attractive, and the company's ongoing share buyback program of more than HK$100 billion provides a good entry point for investors.
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