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Earnings First Take: Core net profit declined by 2% in 3Q21, slightly below market expectations

  • Non-IFRS net profit declined by 2% y-o-y, slightly below market expectations
  • Online games and advertising revenue grew by 8% y-o-y and 5% y-o-y respectively
  • The overall sluggish performance was partly due to regulation changes and step-up investments
  • Expect near-term share price pressure
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What’s New
– Tencent (700 HK) announced its 3Q21 results on11Nov after HK market close.
– Revenue increased by 13% y-o-y to Rmb142bn.
– Segment-wise, online game revenue increased by 8% y-o-y to Rmb44.9bn. In terms of geographical performance, domestic game revenue grew by 5% y-o-y to Rmb33.6bn, while international game revenue rose 20% y-o-y to Rmb11.3bn.
– Online ads revenue increased by 5% y-o-y to Rmb22.5bn, with social ads increasing by 7% y-o-y, while brand ads declining by 4% y-o-y. FinTech and business services revenue rose 30% y-o-y.
– Non-IFRS net profit declined by 2% y-o-y to Rmb31,751m, below market expectations of c.1-2% y-o-y increase.

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Our View:
– The results were slightly below market expectations due to decline of non-IFRS net profit, attributable to slower online game and advertising revenue growth.
– Overall performance showed a slowdown compared with 2Q21, partly due to regulatory reasons, e.g. crackdown on minor gaming time and suspension in game approval.
– Sluggish non-IFRS net profit growth was also due to step-up investments on Fintech and could business, which was mentioned by management a few quarters earlier.
– We currently rate BUY on the counter.
– Analyst briefing will be held at 8pm Hong Kong Time today.