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1、Deutsche BankMarkets ResearchRatingHoldAsiaChinaCompanyTencentDate24 April 2013Company UpdatePrice at 23 Apr 2013 (HKD)251.60TechnologySoftware & ServicesPrice target - 12mth (HKD)266.00Reuters 0700.HKBloomberg 700 HKExchange Ticker52-week range (HKD)284.40 - 208.40HKG0700HANG SENG INDEX22,044Th

2、e Tencent game pipelineAlan Hellawell IIIResearch Analyst (+852) 2203 6240alan.hellawellDiversified and high quality game pipeline but limited rev contribution in 2013We view Tencents gaming pipeline as diversified in game genre and deep in content quality, suggesting the co's game sourcing and

3、development abilitiesAlex Yao Research Analyst(+86) 21 2080 1666alex.yaoshould lead it to widen its leaderships online gaming market. On theother hand, most of the titles we view as having the potential to be hit games are in early stages of testing. We expect limited revenue contribution from these

4、 games in 2013.Near term gaming revenue growth hinges on CF, DNF and LoLWe estimate CrossFire (CF), Dungeon ander (DNF) and League ofLegends (LoL) contributed to 70%+ of gaming revenue in 2012. Given the relatively early stage of Tencents high quality game pipeline, we expect these 3 games to contin

5、ue to drive the business over the next 12 months. While Tencent remains very much in control of CF and DNF monetization (despite a gradual aging of the 2 games), the co is placing increasing focus on gamer retention, as evidenced by the introduction of the MOBA element into CF. Another challenge to

6、manage is user time shift from CF and DNF to LoL, which is lightly monetized compared to the former 2 titles.Key titles to watch: Blade & Soul, Xuan Dou Zhi Wang and Ba San Guo Online We view these 3 titles as having the potential to help Tencent gain presence in under-developed genres, and even

7、 more developed genres with limited cannibalization to existing titles. However, it could take long time for these 3 games ramp up revenue, as past evidence suggests Tencent may take its time in content localization/development and monetization ramp.Maintain Hold and target price; risks (more on pag

8、e 8)TP is based on a 2013E non-GAAP EPS of HK$11.2, 2013-15E EPS CAGR of 22%, and a PEG of 1.1x. TP implies 24x 2013E PE. Risks: mobile operator policy changes, e-commerce performance, surprise in game performance.3202802402001601204/1110/114/1210/12TencentHANG SENG INDEX (Rebased)Performance (%)1m3

9、m12mAbsolute2.5-6.56.3HANG SENG INDEX-0.3-6.76.92010A2011A2012E2013E2014EYear End Dec 3119,646.028,496.143,893.756,383.467,803.9Sales (CNYm)10,621.213,389.317,228.821,691.127,346.3EBITDA (CNYm)8,053.610,203.112,731.915,849.620,113.6Reported NPAT (CNYm)4.335.496.848.4910.76Reported EPS FD(CNY)4.595.8

10、97.649.1211.47DB EPS FD(CNY)54.928.129.819.325.9DB EPS growth (%)29.826.826.222.017.5PER (x)22.520.819.715.912.2EV/EBITDA (x)0.440.470.500.520.62DPS (net) (CNY)0.30.30.20.30.3Yield (net) (%)Source: Deutsche Bank estimates, company data1 DB EPS is fully diluted and excludes non-recurring items2 Multi

11、ples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end closeDeutsche Bank AG/Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors shouldbe aware

12、that the firm may have aof interest that could affect the objectivity of this report. Investors shouldconsider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYSTCERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013.Forecasts And RatiosPrice/price

13、 relative24 April 2013Software & Services TencentMupdated:21 March 2013Fiscal year end 31-Dec2009201020112012E2013E2014EAsiaDB EPS (CNY)Reported EPS (CNY) DPS (CNY)BVPS (CNY)2.962.790.396.84.594.330.4412.05.895.490.4715.67.646.840.5022.69.128.490.5230.711.4710.760.6241.1ChinaSoftware & Servi

14、cesWeighted average shares (m) Average market cap (CNYm) Enterprise value (CNYm)1,802153,005146,1911,817248,971238,5901,819286,526278,7631,827364,090339,0441,830364,090344,4741,834364,090333,439Reuters: 0700.HKBloomberg: 700 HKValuation MetricsP/E (DB) (x)P/E (Reported) (x) P/BV (x)28.630.421.9729.8

15、31.712.2926.828.78.2826.229.38.8622.023.66.5217.518.64.87Price (23 Apr 13)HKD 251.60Target PriceHKD 266.00FCF Yield (%) Dividend Yield (%)EV/Sales (x) EV/EBITDA (x) EV/EBIT (x)4.90.511.822.324.34.20.312.122.524.33.20.39.820.822.74.20.27.719.721.91.60.36.115.917.76.40.34.912.213.552 Week rangeHKD 208

16、.40 - 284.40Market Cap (m)HKDm 457,305USDm 58,902Company ProfileTencent HoldingsSales revenue Gross profit EBITDADepreciation Amortisation EBITNet interest income(expense) Associates/affiliates Exceptionals/extraordinaries Other pre-tax income/(expense) Profit before taxIncome tax expense Minorities

17、Other post-tax income/(expense) Net profit12,4408,5506,55953806,020000206,0418196605,15619,64613,32610,62178309,838000759,9131,7986208,05428,49618,56813,3891,136012,25400-1661112,0991,87422010,20343,89425,68617,2291,749015,47900-26-40215,0512,26653012,73256,38332,38721,6912,247019,444000-8019,3643,4

18、8629015,85067,80438,92127,3462,702024,644000-8024,5644,42229020,114provides internet, mobile andtelecommunication value-added services company has an instant messaging commu Tencent also provides online advertising services.The.Price Performance320280240200160120DB adjustments (including dilution) D

19、B Net profit3215,4774968,54973710,9401,49214,2241,15717,0071,34021,453Apr 11Jul 11 Oct 11Jan 12Apr 12Jul 12 Oct 12Jan 13Cash flow from operations Net CapexFree cash flowEquity raised/(bought back) Dividends paidNet inc/(dec) in borrowingsOther investing/financing cash flows Net cash flowChange in wo

20、rking capital8,332-8207,512-13-587202-4,1392,9762,10612,258-1,87010,388-278-7065,097-9,9484,5522,34913,221-4,0469,1740-7928,294-14,1362,5393,43119,860-4,38915,4700-861-4,880-9,0057243,83711,627-5,6385,9890-9140-10,324-5,249-1,02830,293-6,78023,5130-9590-11,33911,2153,563TencentHANG SENG INDEX (Rebas

21、ed)Margin Trends56524844403632Cash and other liquid assets Tangible fixed assets Goodwill/intangible assets Associates/investments Other assetsTotal assetsInterest bearing debt Other liabilitiesTotal liabilities Shareholders' equity MinoritiesTotal shareholders' equityNet debt6,0442,5172696,

22、4832,19317,5062025,0055,20712,17912012,299-5,84110,4083,29357318,0343,52235,8305,2998,69013,98921,7578421,841-5,10912,6125,8853,78027,4027,12556,80413,59314,12327,71628,46462529,08898013,3838,7534,71940,1968,20575,25612,20820,89933,10841,29885142,148-1,1757,83412,1445,01950,46915,17790,64312,20821,3

23、2233,53056,23388057,1134,37418,74916,2225,31961,75713,123115,17012,20826,66538,87375,38890876,297-6,54109101112E13E14EEBIT MarginEBITDA MarginGrowth & Profitability806050403020100604020009101112E13E14ESales growth (LHS)ROE (RHS)Sales growth (%) DB EPS growth (%) EBITDA Margin (%) EBIT Margin (%)

24、 Payout ratio (%) ROE (%)Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x)Source: Company data, Deutsche Bank estimates73.985.152.748.413.753.76.61.5-47.5nm57.954.954.150.19.847.59.52.4-23.4nm45.028.147.043.08.440.614.23.63.4nm54.029.839.335.37.236.510.02.5-2.8nm28.51

25、9.338.534.56.032.510.02.57.7nm20.325.940.336.35.730.610.02.5-8.6nmSolvency20100-10-20-30-40-50-6009101112E13E14ENet debt/equity (LHS)Net interest cover (RHS)Alan Hellawell IIIalan.hellawellPage 2Deutsche Bank AG/Key Company MetricsBalance Sheet (CNYm)Cash Flow (CNYm)Income Statement (CNYm)HoldTencen

26、tFinancial SummaryRunning the numbers24 April 2013Software & Services TencentFrom gaming platform toextensive entertainment platformA closer look at the 2013 game pipelineTencent Games held its 2013 Annual Press Conference on 18 April to present itsgaming strategies, key titles in the pipeline a

27、s well as its game testing time-lines for the year. The company at the conference reiterated its “Pan-Entertainment Strategy,” which aims to integrate online games with other entertainment elements (e.g. movies, dance, painting and the arts). We believe the strategy is likely to grow Tencent into a

28、potential multiple-platform entertainment giant in the long run.Key trends 1: portfolio getting more “action-oriented”As demonstrated in figure 4, Tencent announced 7 action games in the event, representing 39% of the total number of game titles announced. In addition, new MMOs announced at the even

29、t are likely to prove more action-oriented than incumbentMMOs in the currentonline gaming market. We believe Tencent is structurallybetter positioned in action-based games than its peers as:Action-based games appeal to Tencents young user baseThe games require low network latency, which Tencent is a

30、ble to offerThe category remains under-developed, particularly in genres such asonline sports, onlineing, etc.Key trends 2: More MOBA to comeMultiplayer Online Battle Arena Games (MOBA) have proven popular in the global online gaming market, as evidenced by the solid usage of LoL. We view MOBA as po

31、tentially offering longer term user engagement than MMO as the category:Is competition-driven and thus less content-dependent.Usually requires less time spent per game than MMOsCan be more easily organized and managed than MMOsIts interesting to note:Tencent announced plans to introduce a battlefiel

32、d mode to CF in the nextmajor expansion pack update. We view the battlefield mode as containing clear MOBA elements, indicating that: 1) the operation focus on CF will shift to user retention going forward in order to preserve game lifespan. 2) CFs game usage is likely to be cannibalized by LoL, whi

33、ch has lower monetization levels.One of the innovative games announced, Ba San Guo Online, is equipped withclear MOBA elementsKey trend 3: MMORPGsDespite the fact that Tencent officially categorizes DNF as an MMORPG (Massive multiplayer Online Role-Playing Game), we view it as more of action-based i

34、n nature. As such, Tencent has to fully penetrated Chinas MMO market. The introduction ofDeutsche Bank AG/Page 324 April 2013Software & Services TencentMMORPGs is likely to result in mild cannibalization to Tencents existing game titles.The company announced 5 MMORPGs at the event. We view Blade

35、 & Soul as one of its potential hit games in 2013.Farmer vs. hunter; key titles to watch?We refer “farmers” as games that are designed to penetrate into game genres in which Tencent currently doesnt have a strong footing, while “hunters” are games that are designed to retain market share in game

36、 segments in which the company is dominant.From a revenue generation perspective, both game types are important but we viewfarmers as offering stronger potential revenue upside. More importantly, we think farmer games can relatively easily achieve dominance if the game genre is currentlyunder-develo

37、ped(e.g. onlineing). Farmer games moreover tend to bringminimal cannibalization to existing titles if Tencent doesnt have a strong footing in adeveloped game genre (e.g. MMO). Therefore, we regard farmer games as the potential revenue driver and encourage investors to watch this category closely. Am

38、ong the titles announced in this event, we identify the following farmer games:Blade & Soul (剑灵), a quality MMO that is designed withoperations inmind. Blade & Soul is currently the 2nd most highly anticipated online game inChina, according to 17173Xuan Dou Zhi Wang (炫斗之王), the first onlinei

39、ng game, a gamegenre that is under-developed but could attract a large number of potentialgamers with arcade gaming experience.Ba San Guo Online (霸三国 Online), an innovative online RTS with MOBA elements. We view this niche game genre as under-developedHow long does it take to see full scale commerci

40、alization?Based on historical precedence, it usually takes more than three months to commercialize a game from its initial beta testing. For example, there were roughly 3-4months between the initial closed beta testing of Dungeon &er (DNF), and thegames public testing (which in our view suggests

41、 the start of commercialization). Forother key titles such as Cross Fire (CF) and League of Legends (LoL), beta testing could last as long as 1-2 years before its official launch (start of commercialization).12 Mar 2008Alpha test19 Oct 2007Pre-alpha test25 Dec 2007Beta test25 Apr 2008Beta test26 Mar

42、 2008Archive-keeping beta test28 May 20082nd round of beta test28 Apr 2008Open beta test19 Jun 2008Public test25 Jul 2008Public testDaysDays020406080100120050100150200250300350Source: Deutsche Bank, company dataSource: Deutsche Bank, company dataPage 4Deutsche Bank AG/Figure 2: Timeline of CFFigure

43、1: Timeline of DNF24 April 2013Software & Services Tencent22 Apr 2010Pre-alpha test12 Aug 2010Alpha test8 Dec 2010Beta test25 May 2011Archive-keeping beta test21 Jul 2011Open beta test22 Sep 2011Public testDays0100200300400500600Source: Deutsche Bank, company dataAs such, we believe the revenue

44、contribution from these new titles is more likely tobegin in 4Q13 at the earliest, given that a majority of these games will enter their initial beta testing around May/June 2013. More meaningful revenue contribution will likely emerge from 2014. We therefore believe that Tencents gaming revenue wil

45、l continue to be primarily driven by its legacy titles, including CF, DNF and LoL.More on Blade & SoulBlade & Soul. The game is a fantasybased action MMORPG developed by Korean game developer NCsoft. Tencent will launch the third round of internal testing on this game on 7 May, with a theme

46、“Find your soul”, encouraging gamers to highlight the features of the game. There will be five major updates in the new round of testing, including:Adding a new profession: Soul Saber,Updating a PvE (player versus environment ) mWu Shen Tower,Updating a PvP (player versus player) mJousting Field,Add

47、ing an game instance for 24 players, andA new social system which adds an account/friend system and connects with/QT.We present those games that are scheduled to enter beta testing this year in the tablebelow. We actually note that there is an increasing number of games which are produced in-house b

48、y Tencent.In figure 4, we present the ratio of Baidu search queries of the game titles announced atthe event to Baidu search queries for LoL on Apr 19, Chinas most frequently searched game title. We believe the ratio represents a proxy to the relative popularity of the games. Blade & Soul achiev

49、ed 25% of LoLs search volume and beat other titles by a big margin, which indicates the relatively strong appeal of the game.In addition, we also list games that require activation codes for the next round oftesting. We view a requirement for activation codes an indicator of early stages of testing.

50、 It usually takes more than 3 month for such games to enter into full scale commercialization.Deutsche Bank AG/Page 5Figure 3: Timeline of LoL24 April 2013Software & Services TencentIn, we view Tencents gaming pipeline as diversified in game genre anddeep in content quality, suggesting that the

51、cos game sourcing and developmentability and should lead Tencent to widen its leaderships online gaming market.We expect Tencents game genre strategy to further drive Chinas online gamingmarket growth and help Tencent gain more market share. On the other hand, most of the titles we view as having po

52、tential to be hit games are in early stages of testing. We expect limited revenue contribution from these games in 2013.Game typeTitlenameDeveloperCountryNext beta testingInitial testing or Activation code Baidu Index:not ()the game/LOLMonster Hunter怪物猎人Tencent/CapcomChina/Japan13-JunYesYes2.7%Sura天

53、刹 NSE EntertainmentSouth KoreaTo be confirmedYesYes0.2%魂之猎手MysticerDadam GAMESouth Korea13-JunYesYes0.7%ACT疾风之刃KritikaALL-MSouth Korea13-JulYesYes1.9%炫斗之王Xuan Dou Zhi WangTencentChina2Q13NoN/A1.5%Feng Shen Ji封神记TencentChina13-JulNoN/A0.2%Dancer 2炫舞 2TencentChinaN/ANoNo0.9%枪神纪Age of GunslingersOnlineTencentCh