Jefferies Research adjusted its forecast in mobile games & ads for Tencent Holdings (00700) to reflect (1) recent industry trends, (2)
peer comparison in online video outlook, and (3) softness of Perfect World Mobile from 2Q to 3Q.
In 4Q, the research house expects CODM (Call of Duty Mobile) and potential Supercell consolidation to drive QoQ game revenue growth. Jefferies is positive on Tencent's long-term gaming outlook, driven by paying ratio and unrivaled leadership in e-Sports.
It estimated total revenue for 3Q to grow 10% QoQ and 21% YoY to RMB97.5bn. VAS revenue (53% of total) is expected to grow 8% QoQ and 18% YoY to RMB51.8bn. PC games revenue is expected to fall by 3% QoQ and 9% YoY on continued user migration from PC to mobile, while smartphone games revenue is expected to grow 15% QoQ and 32% YoY (prior 39% YoY).
Non-GAAP operating profit is expected to grow 22% YoY to RMB27.6bn and non-GAAP operating margin to expand by 30bp YoY to 28.3%. Non-GAAP net income is expected to grow
24% YoY to RMB24.4bn.
Jefferies maintained its "buy" rating on Tencent, with a target price of HK$455.3.
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