Tencent Holdings Ltd (0700)

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My takeaways from 2023Q4 results:

Overall, in my view, it is a good set of results where business and earnings continue to exhibit growth. Tencent also showed a positive and generous stance of returning capital to shareholders. In terms of share price reaction, the market is however not too impressed.

(Earnings Performance)
1. Profit grew strongly in 2023Q4 and FY2023 as revenue grew on platforms which costs are already paid for.
2. Margin expansion would support earnings growth in FY2024.
3. Projecting 2023Q4 gross margins over FY2024, even with no revenue growth, profit in FY2024 will be higher yoy.

(Return to SHs)
4. 42% increase in dividend per share for FY2023.
5. Commitment to double the amount of share repurchase in FY2024 to HKD100B.
6. For reference, average daily trading value is about HKD6B (HKD 300 x 20M shares). HKD100B is equivalent to ~1 month of trading value.

(Advertising)
7. Weixin Search is adding a new dimension to Tencent’s ecosystem and could further strengthen Tencent’s advertising business.
8. Near-term financial benefits of AI is going to be felt most in growth in advertising revenue.

(Games)
9. Domestic Games revenue was down 3% yoy in 2023Q4. International Games revenue was down 1% yoy (constant currency terms) in 2023Q4.
10. Tencent believes that gaming revenue will improve from 2024Q2.
11. Tencent games are at the low end of industry ARPU, thus not too worried about regulations on gaming spend.

(FinTech)
12. Lets not forget that Tencent has a thriving financial services business operating on a take-rate model.
13. Increased revenue contribution from FinTech Services driven by increased commercial payment volume, wealth management fees and consumer loan fees. Tencent enhanced Mini Program based, QR code and palm payment solutions, driving repeat sales for offline merchants.
14. Tenpay’s capital increase – a silent approval for further development of business.
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