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Morgan Stanley raises Tencent (0700) to HK$550

  Morgan Stanley raised its target price for Tencent
(00700) to HK$550 from HK$500, and maintained its "overweight" rating.
  The research house expects solid 4Q results despite PC gaming seasonality, and another 
good year for games on successful 2018 launches and speedier ad and payment monetization.
eCommerce and offline investments foreshadow strategic planning for the next phase.
  Morgan Stanley trims 4Q17 sales by 4% due to softer game business and project 4Q total 
revenue will reach Rmb66bn, up 50% yoy and 1% qoq. The gaming business should maintain 
strong momentum though seasonality could become more pronounced during the
quarter. It forecasts total game revenue at Rmb24.9bn, up 35% YoY and down 7% QoQ, versus
+2% to +11% QoQ in 2014-2016. For advertising, it expects the segment revenue to reach 
Rmb12.0bn, up 45% YoY and 9% QoQ. It expects 4Q17 non-GAAP net margin to be at 24%, down 
2ppt qoq. Given potential gaming revenue shortfall, Morgan trims down 4Q17 non-GAAP EPS
estimates by 6%.
  Morgan Stanley expects Tencent's mobile game momentum to remain robust in 2018, driven 
by a sustainable Honor of Kings (HoK) contribution as well as other new successful 
launches (i.e. QQ Speed Mobile). It also expects advertising to outgrow online games in
2018, with media advertising to benefit from the revamp of its news feeds product and
social and other advertising to see improved monetization efficiency in WeChat Moments as
advertiser numbers and the fill-up rate both increase. 

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