On Thursday, Loop Capital increased its price target on Tencent Holdings (700:HK) (OTC: OTC:TCEHY) shares, a leading technology company, to HK$510.00 from the previous HK$435.00, while reiterating a Buy rating on the stock. This adjustment follows Tencent's robust first-quarter financial results.
The firm's analysts have revised their estimates upward, attributing the new price target to a higher profit forecast and an elevated target multiple on contributions from Tencent's online games sector. The target multiple has been adjusted to 12.5 times, up from 10 times.
Tencent's gross profit surged by 23% year-over-year in the first quarter, marking the fifth consecutive quarter of over 20% growth in gross profit. Additionally, adjusted EBITDA increased by 20% on the back of a 1% revenue growth.
Loop Capital anticipates this positive trend to persist, with gross margin improvements expected across all segments. The firm also highlighted Tencent's management's commitment to maintaining financial discipline.
The online games business is predicted to experience a robust recovery, supported by a promising pipeline and a solid rebound in gross receipts.
Another factor contributing to Tencent's positive outlook is the expected growth in advertising, which is becoming increasingly significant to the company's top-line and profitability. This growth is driven by advancements in AI-based advertising technology and the expansion of Video Accounts.
The revised forecast for the FY24-ending share count reflects a 3% reduction compared to previous estimates. Loop Capital suggests that the actual reduction could be more conservative if Tencent continues its accelerated buyback pace, which has reached HK$1 billion per day following the first-quarter earnings report.
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