Research published by Blue Lotus Research on April 18, 2022


(6 Pages, 4 graphs and tables)
Listen to analyst’s audio summary
  • We estimate that Tencent 1Q22’s rev./non-IFRS net profit will have 0.9%/(15.2%) YoY change, and are (4.4%)/3.8% vs cons.
  • Our 2Q22’s rev./non-IFRS net profit missed cons by 8.2%/4.6%. We cut our estimation of online ads and fintech because of current lockdown measures.
  • We forecast 2022’s EPS will have 5% YoY decline vs 2021, and cut TP to HK$399, which implies 27.6X PE in 2022.
PC and mobile games show flattish growth
We estimate that Tencent PC games have 0.4% YoY growth, and mobile games have 2.7% YoY decline in 1Q22: 1) and have about 2%-6% YoY growth because of content update, but China and overseas have seen 10%-15% YoY decline because of cannibalization from ; 2) and gross billings experienced about 15%-20% YoY decline in 1Q22, and the decline will be deferred to the next two quarters; 3) Supercell growth slowed to about 10%-15% YoY in 1Q22, vs 45% YoY in 2021. Supercell implemented more optimization work in 2021, following some key management change. But the growth will also experience slowdown in 2022. 4) Other Tencent overseas games, like and , have seen about 15%-20% YoY decline because more people went back to work after COVID. In general, Tencent games are facing some common issues in 1Q22, lack of new games and protection of minors. The re-approve of game code could help save the new-game issue, but Tencent is facing challenges in building its 3A game development capability.
Positive signs in online ads are offset by COVID
We estimate that Tencent online ads will record about 17% YoY decline in 1Q22, with media/social declines about 27%/16% YoY, respectively. Wechat-related ads, including moments, official accounts, and mini programs have more resilience, and other ads, like ads network, QQ/Qzone, Tencent News, and Tencent Video have all seen more than 20% YoY declines. (To be continued)

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