Huachuang Securities: Maintaining Tencent Holdings (00700) “Recommended” Rating Target Price of HK$473.63-526.25

The Zhitong Finance App learned that Huachuang Securities released a research report stating that maintaining the “recommended” rating of Tencent Holdings (00700), the company is expected to achieve revenue of 6655/7257/784 billion yuan in 24-26 years, YOY +9%/9%/8%; achieve NON-IFRS net profit of 2197/2464/274.2 billion yuan, YOY +39%/12%/11%; achieve NON-IFRS EPS 23.94/27.55/31.44 yuan, YOY +44%/15%/14%, target price HK$473.63-526.25. On September 4, Taobao and Tmall issued an announcement stating that it plans to add WeChat payment capabilities and adjust the platform rules after collecting comments.

The main views of Huachuang Securities are as follows:

The payment processing fee for e-commerce platforms is about 0.1% to 0.3%.

As far as the e-commerce scenario is concerned, wallet companies collect processing fees from e-commerce platforms in the form of transaction flows to generate revenue, and form “payment processing fees” in the e-commerce platform's operating costs. For example, in the past, Pinduoduo's payment processing fee was about 0.1%, and Meituan was about 0.3%. It was determined that Alipay charged Taotian Group a processing fee rate of about 0.2% through the breakdown of related transactions.

It is expected to bring revenue in the amount of several billion to more than 10 billion dollars to WeChat Pay every year, driving the FTB business by 1% to 4%.

The bank made flexible estimates based on the FY25 Taotian Group GMV agency's unanimous forecast of 8.3 trillion yuan. Under conservative (0.1%) /neutral (0.2%) /optimistic (0.6%) conditions, the bank expects that every 5% penetration rate will bring WeChat Pay 4.2/8.3/2.5 billion yuan in revenue per year. Taking into account the penetration rate (assuming less than 35%), it is expected to bring in revenue growth of several billion to more than 10 billion dollars every year. Agencies corresponding to FTB's 25-year revenue unanimously expect 431.7 billion yuan, roughly corresponding to a 1% to 4% boost. Furthermore, the bank believes that another important role for WeChat Pay to connect to the Taotian Group is the expected return of e-commerce transaction payment data, consumer behavior data, and merchant data to make up for Tencent's shortcomings in this field and promote the development of live video e-commerce. (Agencies agree that they all end on September 11, '24)

The FTB business is expected to maintain a “low growth rate+slow increase in gross margin” due to changes in the revenue structure and an increase in the share of change payments.

Since 2Q23, the bank has observed a continuous increase in the gross margin of the FTB business. The bank believes that, on the one hand, it is due to changes in the revenue structure, the share of technical service fees for video account merchants with relatively high gross margins has increased, and the growth rate of the relatively low gross margin payment business has also slowed down over the past 24 years. On the other hand, the bank believes that the payment business itself has also seen a trend of increasing gross margin since this year. The driving factor is the increase in the share of change payments. This portion of the turnover does not need to bear the card issuer's costs or online settlement fees. It is a high-gross margin turnover, and an increase in share is expected to lead to an increase in overall gross margin. Looking ahead, the bank believes that in a challenging macroeconomic and consumer environment, the growth rate of payment business revenue may remain at a relatively low level, but the two drivers of gross margin growth mentioned above are expected to continue, which in turn will cause the FTB business to maintain a “low growth rate+slow increase in gross margin.”

Risk warning: the risk of macroeconomic fluctuations; the increase in the penetration rate of WeChat Pay falls short of the expected risk; the increase in the penetration rate of change balance payments falls short of the expected risk.