Equity Analysis /
Hong Kong

HK : Tencent - 1Q22 results lower than expected; shifting to low gear in the near term

    Mark Po
    Mark Po

    Research Analyst

    CGS-CIMB
    18 May 2022
    Published by

    Tencent’s 1Q22 results were lower than our and market expectations. Domestic online game revenue dropped 3% yoy, and overseas game revenue grew 8% yoy (vs. 24% yoy in 4Q21). Performance of fintech and business services was impacted by macro headwinds (such as the COVID-19 outbreak) and the impact of regulations. We reiterate the view that 2022 will be challenging for the industry and for Tencent, especially in 1H, given delays in the launch online game licenses and the implementation of regulations in various segments. We lowered our net profit forecasts slightly for 2022F, 2023F and 2024F after the 1Q22 results announcement. The cut in net profit forecasts and management guidance 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 its investments will translate into future growth and that the recent message from Chinese government is turning more positive for the sector. Reiterate ADD with a new DCF-based target price of HK$440.6 (down from HK$485.2). A near-term catalyst would be the normalization of government policy and a pick-up in the revenue growth rate.