Tencent delivered largely in-line 4Q20 results, with revenue/adj. net profit +26% YoY/+30% YoY, 0%/2% above consensus. Ads & FBS performed well, while mobile game decelerated. We expect ads to accelerate in 1Q21E, and long-term game upside from new key titles & overseas intact. Video Accounts and mini program in WeChat ecosystem could further unlock its TAM. But in the short run, stock price might see pressure from game deceleration, regulation headwinds and weak market sentiment. We keep our financial forecast unchanged, but lifted our SOTP-based TP to HK$735 from HK$669 by rolling over to FY22E multiple.
- 4Q20 largely in-line. 4Q20 revenue was RMB133.7bn, up 26% YoY, 0%/1% above consensus/our estimate, mainly on strong ads and FBS. Non-GAAP net profit grew 30% YoY to RMB33.2bn, 2%/0% above consensus/our estimate. We view this result as largely in-line, in which ads and FBS saw strong momentum, partly offset by moderate game growth. Regarding regulations on Fintech and Antitrust, mgmts. showed active cooperation with government to promote healthy competition landscape.
- Game deceleration ahead. Game +29% YoY in 4Q20 (vs. +45% in 3Q20), in which mobile game +41% YoY (slightly below consensus of +45% YoY). We are impressed by its international games performance (+43% YoY, accounting for 25% of total games). 1Q21E game might still see deceleration given high base and traffic normalization (deferred rev -3% QoQ). But in the long run, we are positive on its game momentum, backed by: 1) overseas contribution; and 2) new games to bring upside (e.g. DnF Mobile, LoL).
- Ads to accelerate; eyes on video initiatives. Ads accelerated to +22% YoY in 4Q20 (vs. +16% YoY in 3Q20), in which social ads/ media ads +25%/+9% YoY (vs. +21%/-1% YoY in 3Q20). We view the ads growth above street estimates, and expect 1Q21E ads to accelerate (+26% YoY), driven by popular drama series of Tencent video, recovering brand ads sentiment and video ads trend. We are bullish on Video Accounts potential for its deeper penetration and sizeable users, while monetization would be conservative at this stage, per mgmt.
- Maintain BUY. We keep our financials unchanged, but lifted our SOTP-based TP to HK$735 (implying 32x FY22E P/E) by rolling over to FY22E multiple. We expect its new game pipeline, video initiatives in WeChat ecosystem to unlock its secular growth.s
