Citigroup lowered Tencent target price-earnings ratio to 38 times

Citigroup research report released yesterday, in view of market attention to advertising-based business model or affected by the global economic slowdown, it will Tencent Holdings (00700. HK) target of 5% to reduce the price-earnings ratio of 38 times the target price set at 75 Hong Kong dollar. Citigroup said that although its objectives with the price-earnings ratio than the Internet industry in 40 to 50 times the premium, but Tencent, with its huge number of Internet users and profitable channel diversification, thus the valuation is still reasonable scope, given its "buy" rating.

Citigroup believes that although Tencent strong second quarter performance and better-than-expected, but the individual business income growth in the second quarter of significant signs of slowing down, especially IVAS (Internet value-added services) and non-game business, including non-game business income from the first quarter of the year Growth of 68.5% to 48.2% in the second quarter, Central more regressive than 3.7 percent. The bank that slower growth and more affected by seasonal factors. Lunar New Year holidays allows users to have more time to use IVAS, resulting in the first quarter of the second quarter, the seasonal slightly weak at the same time, in May in Sichuan earthquake and the first Labour Day Golden Week holiday shortened, so that all of this year's season Effects become more pronounced. In addition, Tencent management stated that the impact of the Beijing Olympics, and the use of Internet users IVAS time greatly reduced, but its expected third-quarter results will become positive and strong.

Tencent as the mainland's third-largest portal site (flowmeter is the largest portal), its advertisers more for small and consumer products companies, rather than the more large advertisers - durable goods company. However, Tencent said its Olympic-effective than the average distribution and thus its online advertising this year, the seasonal impact than other Internet portals or large fluctuations in the same time, its Olympic advertising for the site not only plane banners, including advertising, such as the corporate brand " Qzones ", its effectiveness will be expected to average over several quarters.

Citigroup is expected to Tencent third quarter IVAS business will grow substantially, sufficient to offset the negative impact of the Olympic Games. During the Olympics users spend more time watching television, online games now online at the same time the highest number (PCU) than before the opening of the Olympics by about 10 percent, but the bank believed that the summer holidays approaching, July game business will remain strong, the end of July and August The beginning of the PCU will be much higher than the end of June.

IVAS business for the non-game part of Citigroup that the majority of Tencent online community services focused on young users, and such services as the cheapest form of entertainment, which will be the most defensive, will be exempt from the overall economy Slow-down drag. As part of IVAS games, Citigroup believe the next 18 months can also maintain strong growth momentum and revenue growth next year will become a huge driving force. It is learnt that the second quarter of this year by the performance of most existing games to promote growth, "QQ Hyun-Dance," "underground city and the Warriors" and "crossing the firing line" in the new games launched by the end of June, has yet to contribute to income, and through PCU inspection data, Citigroup that at least there will be two new games will be popular, respectively 400,000 and 500,000 PCU "through the firing line" and "underground city with the Warriors."

In addition, Citigroup is expected Tencent the third quarter of online advertising will continue to grow strongly. In view of the first quarter and second quarter has been substantial growth, expected increases in the third quarter will be relatively lower. As for MVAS (mobile value-added services) business, the bank believes that its impact will not be subject to the Olympic Games.

Citigroup is expected to Tencent this year and next year net profit for the year were 2.489 billion yuan and 3.201 billion yuan, per diluted earnings per share were 1.348 yuan and 1.735 yuan, respectively, the corresponding price-earnings ratio of 43 times and 33.5 times the rate of inflation City 13.9 times and 10.2 times.