Blue Lotus China New Economy Research, Blue Lotus Research Institute

Eric Wen

Blue Lotus China New Economy Research

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

<ul>
<li>The key takeaway from this earning season on the topic of generative AI (GAI) is that in-house generated content has the greatest potential for cost savings;</li>
<li>Taking a step further, mid-sized video platforms can also use AI to skip the curator layer, similar to Pinduoduo using algorithm to bypass small merchants to connect directly to factories;</li>
<li>We also notice that general media platforms with ample advertising inventories tend to perform better with AI's help, which is why ads of Tencent's advertising performed better than Baidu's.</li>
</ul>


The key takeaway from this earning season on the topic of generative AI (GAI) is that in-house generated content has the greatest potential for cost savings;
Taking a step further, mid-sized video platforms can also use AI to skip the curator layer, similar to Pinduoduo using algorithm to bypass small merchants to connect directly to factories;
We also notice that general media platforms with ample advertising inventories tend to perform better with AI's help, which is why ads of Tencent's advertising performed better than Baidu's.


A Few Generative AI Takeaways From C1Q24 Earnings

Blue Lotus Non US Internet research, Blue Lotus Research Institute

Ying Pan

Blue Lotus Non US Internet research

<ul>
<li>Tencent reported C1Q24 revenue, IFRS operating profit, and IFRS net income in-line, 9.1%, 26% vs. our estimates and in-line, 16%, 21% vs. consensus;</li>
<li>Game revenues were below our expectations while advertising was above, leading to a gross margin beat of 2.73ppt, powered by video account and AI. </li>
<li>We raised our TP to HK$450 to reflect the shift to better-margin revenue mix and upcoming revenue acceleration.</li>
</ul>


Tencent reported C1Q24 revenue, IFRS operating profit, and IFRS net income in-line, 9.1%, 26% vs. our estimates and in-line, 16%, 21% vs. consensus;
Game revenues were below our expectations while advertising was above, leading to a gross margin beat of 2.73ppt, powered by video account and AI. 
We raised our TP to HK$450 to reflect the shift to better-margin revenue mix and upcoming revenue acceleration.


[Tencent (700 HK, BUY, TP HK$450) TP Change]: Market Finally Starting to Recognize Tencent’s Value

Tracking developments across tech supply chains, Tech Supply Chain Tracker

Tech Supply Chain Tracker

Tracking developments across tech supply chains

<ul>
<li>Microsoft's China AI teams relocate due to US rules, focusing on Wi-Fi 7 development for improved connectivity and performance.</li>
<li>Amazon's stake in Alchip suggests potential synergy in AI tech and expanded market reach, while Kymco launches eco-friendly e-scooter.</li>
<li>Tencent Cloud partners with BRI and Hi Cloud Indo for banking innovation, while Veolia opens first regeneration plant in China for sustainable water treatment. Tron Future secures funding for counter-drone tech.</li>
</ul>


Microsoft's China AI teams relocate due to US rules, focusing on Wi-Fi 7 development for improved connectivity and performance.
Amazon's stake in Alchip suggests potential synergy in AI tech and expanded market reach, while Kymco launches eco-friendly e-scooter.
Tencent Cloud partners with BRI and Hi Cloud Indo for banking innovation, while Veolia opens first regeneration plant in China for sustainable water treatment. Tron Future secures funding for counter-drone tech.


Tech Supply Chain Tracker (17-May-2024): Microsoft China AI teams may relocate due to US restrictions.

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<ul><li>Tencent announced 1Q24 results: total revenue increased by 6% YoY to RMB159.5bn, in line with our/consensus estimate; non-IFRS net income grew by 54% YoY to RMB50.3bn, 17/16% ahead of our/consensus estimate, as Tencent’s quality growth strategy drove better-than-expected GPM expansion (+7.1ppt YoY).</li><li>We expect the GPM expansion to continue in the rest of FY24, driven by the increased contribution from high-margin revenue streams such as Video Accounts (VA) and Mini Games.</li><li>The improving profitability should in turn support Tencent’s shareholder return. </li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

Tencent announced 1Q24 results: total revenue increased by 6% YoY to RMB159.5bn, in line with our/consensus estimate; non-IFRS net income grew by 54% YoY to RMB50.3bn, 17/16% ahead of our/consensus estimate, as Tencent’s quality growth strategy drove better-than-expected GPM expansion (+7.1ppt YoY).We expect the GPM expansion to continue in the rest of FY24, driven by the increased contribution from high-margin revenue streams such as Video Accounts (VA) and Mini Games.The improving profitability should in turn support Tencent’s shareholder return. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Tencent (700 HK) - Quality Growth Strategy Underpins Strong Earnings Growth

Equity Analyst, LightStream Research

Shifara Samsudeen, ACMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> reported 1Q2024 results today. Both revenues and OP grew 6.3% and 30.0% YoY respectively and beat consensus estimates.</li>
<li>Though domestic games revenues declined YoY, there were signs of recovery in Tencent’s gaming business. Online advertising saw strong growth despite 1Q being a seasonally weak quarter for Tencent.</li>
<li>Tencent’s investments in high-margin products have helped boost the company’s margins across all business segments.</li>
</ul>



Tencent (700 HK) reported 1Q2024 results today. Both revenues and OP grew 6.3% and 30.0% YoY respectively and beat consensus estimates.
Though domestic games revenues declined YoY, there were signs of recovery in Tencent’s gaming business. Online advertising saw strong growth despite 1Q being a seasonally weak quarter for Tencent.
Tencent’s investments in high-margin products have helped boost the company’s margins across all business segments.


Tencent: Online Advertising and High-Margin Businesses Support Earnings

China

Baidu, Inc. operates an Internet search engine. The Company offers algorithmic search, enterprise search, news, MP3, and image searches, voice assistance, online storage, and navigation services. Baidu serves clients globally.

East Money Information Co., Ltd. operates online financial information platform.  The Company's products include internet advertising and financial data.

NetEase, Inc. is an Internet technology company that develops applications, services and other Internet technologies in China. The Company's core businesses consist of email service, web portal and online entertainment, including online gaming services. NetEase also offers online advertising, search, mobile applications and e-commerce.

Hithink RoyalFlush Information Network Co Ltd provides online financial data, data analysis software, and other financial software system.

Hithink RoyalFlush Information Network (300033 CH)

People.cn Company Limited mainly engages in internet advertising, information services, mobile value-added and technical services. The Company's main products include original messages, government information services, public opinion research and consulting, mobile news, and ISP services.

Autohome Inc is an online destination for automobile consumers in China.  The Company delivers comprehensive, independent and interactive content to automobile buyers and owners.

Wangsu Science & Technology Co., Ltd. provides online business solutions in China. The Company also provides Content Delivery Network (CDN), and Internet Data Centers (IDC).

Shanghai Wangsu Science & Technology Co (300017 CH)

Beijing Sinnet Technology Company Limited provides customers with broadband access services, IDC and its value-added services, and other internet integrated services. The Company's core business are broadband access services, IDC and its value-added services.

GDS Holdings Limited operates as a holding company. The Company, through its subsidiaries, develops and operates data centers. GDS Holdings offers risk and security management, information technology planing, remote monitoring, cloud hosting, virtualization, disaster recovery, and remote data protection services.

INESA Intelligent Tech Inc. operates in the IT industry. The Company designs and manages cloud servers and big data applications for businesses. INESA Intelligent also manufactures electronic components.

eBay Inc. operates an online trading community.  The Company's service is used by buyers and sellers for the exchange of products and services such as coins, collectibles, computers, memorabilia, stamps and toys, as well as concert and sporting tickets.  eBay also offers, through a subsidiary, secure online payment services.

VeriSign Inc provides domain names and Internet security, enabling the world to connect online with reliability and confidence, anytime, anywhere. The Company ensures the security, stability and resiliency of key Internet infrastructure including the .com and .net top-level domains among others. VeriSign also offers intelligence-driven security services.

GoDaddy, Inc. provides a cloud-based web platform for small businesses, web design professionals and individuals. The Company's platform provides applications that help them connect to their customers, manage their businesses and get found online.

Naver Corp. provides Internet site with web portal services, such as search engine, online game and content development.  The Company also offers marketing service through text and banner advertisement.

CoStar Group Inc. provides building-specific information to the United States commercial real estate industry and related industries. The Company's database details office and industrial space. The database provides digitized photographs and floor plan images on individual commercial buildings in the company's markets.

Yandex NV operates an Internet website in Russia.  The Company's website offers an Internet search engine, news, shopping information, blogs, photographs and videos.  Yandex earns its revenues from online advertising.

SPS Commerce Inc provides on-demand supply chain management solutions through an online hosted software suite.  The Company uses pre-built integrations to eliminate on-premise software and support staff to shorten supply cycle times, optimize inventory levels and reduce costs.

Akamai Technologies, Inc. provides services for accelerating and improving the delivery of content and applications over the Internet; ranging from live and on-demand streaming video capabilities to conventional content on websites, to tools that help people transact business and reach out to new and existing customers.

NEXTDC Ltd. develops data centers. The Company develops and operates carrier and systems integrator neutral data centers in Australia. NEXTDC's customers will also be able to use the data centers as connectivity and content hubs.

AppFolio, Inc. provides cloud-based software solutions. The Company offers a cloud-based property management software that allows apartment and residential property managers to market, manage, and grow their business. AppFolio conducts business in the United States.

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

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Tencent (700 HK)

A Few Generative AI Takeaways From C1Q24 Earnings

C1Q24 generative AI has made explicit impact on listco earnings. We summarized the observed trends and found China has a great deal of potential to...

Blue Lotus Research Institute

[Tencent (700 HK, BUY, TP HK$450) TP Change]: Market Finally Starting to Recognize Tencent’s Value

Tencent's C1Q24 revenue and profit in-line with estimates, boosted by advertising and better-margin revenue mix, leading to raised TP of HK$450.

Blue Lotus Research Institute

Tech Supply Chain Tracker (17-May-2024): Microsoft China AI teams may relocate due to US restrictions.

Microsoft AI teams relocating, Wi-Fi 7 advancements, Amazon's stake in Alchip, Kymco e-scooter launch, Tencent Cloud partnership, Veolia's...

Tech Supply Chain Tracker

Tencent (700 HK) - Quality Growth Strategy Underpins Strong Earnings Growth

Tencent announced 1Q24 results: total revenue increased by 6% YoY to RMB159.5bn, in line with our/consensus estimate; non-IFRS net income grew by...

CMB International

Tencent: Online Advertising and High-Margin Businesses Support Earnings

Tencent's 1Q earnings beat consensus. Though online games declined there were signs of recovery. Online ad saw strong growth despite 1Q being...

Shifara Samsudeen, ACMA, CGMA

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

A Few Generative AI Takeaways From C1Q24 Earnings

C1Q24 generative AI has made explicit impact on listco earnings. We summarized the observed trends and found China has a great deal of potential to...

Blue Lotus Research Institute

[Tencent (700 HK, BUY, TP HK$450) TP Change]: Market Finally Starting to Recognize Tencent’s Value

​Tencent's C1Q24 revenue and profit in-line with estimates, boosted by advertising and better-margin revenue mix, leading to raised TP of HK$450.

Blue Lotus Research Institute

Tech Supply Chain Tracker (17-May-2024): Microsoft China AI teams may relocate due to US restrictions.

Microsoft AI teams relocating, Wi-Fi 7 advancements, Amazon's stake in Alchip, Kymco e-scooter launch, Tencent Cloud partnership, Veolia's...

Tech Supply Chain Tracker

Tencent (700 HK) - Quality Growth Strategy Underpins Strong Earnings Growth

Tencent announced 1Q24 results: total revenue increased by 6% YoY to RMB159.5bn, in line with our/consensus estimate; non-IFRS net income grew by...

CMB International

Tencent: Online Advertising and High-Margin Businesses Support Earnings

Tencent's 1Q earnings beat consensus. Though online games declined there were signs of recovery. Online ad saw strong growth despite 1Q being...

Shifara Samsudeen, ACMA, CGMA

Tencent's C1Q24 revenue and profit in-line with estimates, boosted by advertising and better-margin revenue mix, leading to raised TP of HK$450.