HK : Tencent - 1Q21 results generally in line; stepping up investment could increase near-term pressure

Tencent’s 1Q21 results were generally in line with market expectations. Online game revenue was better than feared. Yoy revenue growth in online ads, and Fintech Cloud accelerated in 1Q21 qoq. However, stepping up investment in three strategic areas – SaaS products, online gaming and short video – will put pressure on near-term profitability. We lowered our net profit forecasts slightly for 2021F, 2022F and 2023F after the 1Q21 results announcement. The cut in net profit forecasts is expected to put pressure on Tencent shares in the near term. We still hold a constructive view on the Company, as we believe that the investment will translate into future growth. Reiterate ADD with a new DCF-based target price of HK$677.1 (down from HK$692.9).

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