Citi maintains Buy on Tencent stock, reviews mixed Q4 performance
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On Wednesday, Citi reaffirmed its Buy rating on Tencent Holdings (OTC:TCEHY) stock (700:HK) (OTC: TCEHY), with a steady price target of HK$455.00. The endorsement comes after Tencent reported its fourth-quarter earnings for 2023, which revealed a slight variance from expectations.
The company’s total revenue reached Rmb155.2 billion, marking a 7% year-over-year increase and a 0.4% rise from the previous quarter. These figures were just shy of Citi’s projection of Rmb155.3 billion and the Bloomberg consensus of Rmb157.4 billion.
Tencent’s Value-Added Services (VAS) saw a 2% year-over-year decline to Rmb69.1 billion, which was slightly below Citi’s estimate of Rmb69.6 billion. The total gaming revenue was Rmb40.9 billion, aligning with Citi’s forecast.
Domestic games, however, fell short of expectations at Rmb27.0 billion, a 3% year-over-year decrease and under Citi’s anticipated Rmb27.9 billion. On the other hand, international games exceeded Citi’s Rmb12.93 billion forecast, coming in at Rmb13.9 billion, which is a 1% increase year-over-year or a 1% decrease on a constant currency basis.
Online advertising revenues outperformed, with a notable 21% year-over-year increase to Rmb29.8 billion, surpassing Citi’s prediction of Rmb28.3 billion. Tencent’s Fintech and business services segment experienced a 15% year-over-year growth to Rmb54.4 billion, although it did not meet Citi’s expectation of Rmb55.3 billion. The segment’s performance was bolstered by double-digit year-over-year growth in FinTech services and a 20% increase in business services.
The company’s non-IFRS net profit amounted to Rmb42.68 billion, a 44% surge year-over-year but a 5% decline from the previous quarter. This result was slightly above both Citi’s forecast of Rmb42.1 billion and the consensus of Rmb42.0 billion.
The increase in net profit was attributed to a higher gross profit margin, which was partially offset by increased sales and marketing as well as general and administrative expenses. Tencent’s non-IFRS earnings per share (EPS) came in at Rmb4.443, which was in line with Citi’s and consensus estimates of Rmb4.384 and Rmb4.454, respectively.
