Market Overview - On January 16, the Hang Seng Index fell by 0.29%, with southbound funds totaling a transaction amount of HKD 110.94 billion, comprising HKD 55.52 billion in buying and HKD 55.42 billion in selling, resulting in a net buying amount of HKD 0.94 million [1] Southbound Trading Activity - The southbound trading through Stock Connect (Shenzhen) recorded a total transaction amount of HKD 41.37 billion, with buying at HKD 20.23 billion and selling at HKD 21.14 billion, leading to a net selling amount of HKD 0.91 billion [1] - Conversely, the Stock Connect (Shanghai) saw a total transaction amount of HKD 69.57 billion, with buying at HKD 35.29 billion and selling at HKD 34.28 billion, resulting in a net buying amount of HKD 1.00 billion [1] Active Stocks - Alibaba-W had the highest transaction amount among southbound funds, totaling HKD 69.52 billion, followed by SMIC and Tencent Holdings with transaction amounts of HKD 57.02 billion and HKD 56.66 billion, respectively [1] - In terms of net buying, SMIC led with a net buying amount of HKD 10.84 billion, with a closing price increase of 2.39%. Xiaomi Group-W followed with a net buying of HKD 8.67 billion, while Hua Hong Semiconductor had a net buying of HKD 5.85 billion [1] - The stock with the highest net selling was China Mobile, with a net selling amount of HKD 10.74 billion and a closing price decrease of 0.62%. Other notable net sellers included Alibaba Health and CNOOC, with net selling amounts of HKD 4.62 billion and HKD 1.08 billion, respectively [1] Continuous Net Buying - Among the stocks, SMIC, Xiaomi Group-W, and Hua Hong Semiconductor were listed as active stocks in both Stock Connect (Shenzhen) and (Shanghai), with SMIC having a total transaction amount of HKD 57.02 billion and a net buying of HKD 10.84 billion [2] - Tencent Holdings and Alibaba-W have seen continuous net buying for 8 days and 5 days, respectively, with Tencent Holdings having the highest net buying amount of HKD 96.85 billion, followed by Alibaba-W with HKD 44.24 billion [2]

Investment Rating - The investment rating for Tencent Holdings (00700.HK) is "Buy" with a current price of 617.50 HKD and a fair value estimate of 744.46 HKD [2]. Core Insights - The report emphasizes that advertising and gaming continue to show strong momentum, with significant investments in AI infrastructure [3][7]. - The forecast for Q4 2025 anticipates revenue of 1,947 billion RMB, representing a year-over-year growth of 13% [7]. - The report projects that Tencent's revenue will reach 7,522 billion RMB in 2025 and 8,290 billion RMB in 2026, with corresponding growth rates of 13.9% and 10.2% respectively [7][24]. Financial Projections - Revenue (in billion RMB): - 2023A: 6,090 - 2024A: 6,603 - 2025E: 7,522 - 2026E: 8,290 - 2027E: 8,973 - Growth Rates (%): - 2023A: 9.8% - 2024A: 8.4% - 2025E: 13.9% - 2026E: 10.2% - 2027E: 8.2% [4]. - Adjusted Net Profit (in billion RMB): - 2023A: 1,577 - 2024A: 2,227 - 2025E: 2,564 - 2026E: 2,929 - 2027E: 3,235 - Growth Rates (%): - 2023A: 36.4% - 2024A: 41.2% - 2025E: 15.1% - 2026E: 14.2% - 2027E: 10.5% [4]. Business Segment Performance - Gaming revenue for Q4 2025 is expected to reach 574 billion RMB, with a year-over-year growth of 17% [7]. - Social network revenue is projected at 324 billion RMB for Q4 2025, reflecting a 9% year-over-year increase [7]. - Marketing services revenue is anticipated to be 421 billion RMB for Q4 2025, showing a 20% year-over-year growth [7]. Valuation Methodology - The report employs a Sum-of-the-Parts (SOTP) valuation method, estimating the fair value of Tencent's core business at 6.35 trillion HKD, leading to a total fair value of 744.46 HKD per share [24][27].

Core Viewpoint - Tencent has exited its investment in Guangzhou Mingzhou Technology, which held a 15% stake, indicating potential concerns about the company's performance and future prospects [1]. Group 1: Company Performance - Mingzhou Technology's main product, "Black Beacon," launched its domestic version in April last year but peaked at only 50th place on the iOS game sales chart, showing a rapid decline in performance thereafter [2]. - The international version of "Black Beacon" was launched earlier but has since been shut down, reflecting poor performance in overseas markets [2]. - The game's ratings on platforms like Good Game and TapTap are relatively low, at 5.6 and 6.2 respectively, indicating a lack of player satisfaction [2]. Group 2: Operational Challenges - Significant operational issues were reported during the game's launch, including server failures that led to delays [4]. - The development team reportedly vacated their original office space, and there were claims of project halts where only social security was paid during downtime, contributing to delays in updates [6]. - Recent updates, such as the introduction of a new character, have been criticized for their quality, further suggesting a decline in the game's development standards [8]. Group 3: Industry Context - The gaming industry has seen a notable number of game closures, with 23 games reported to have shut down by the end of last year, indicating a challenging environment for second-tier games [10]. - Despite the setbacks, there are upcoming titles in the industry that may revitalize the second-tier gaming sector, suggesting potential opportunities for recovery [11].

Core Viewpoint - Tencent Research Institute's WeChat public account was awarded "Annual Influential AI Media" by AIGC Rank for 2025, recognizing its contributions to the intersection of artificial intelligence and social development over the past year [5]. Group 1: Achievements and Contributions - The institute published a total of 120 articles on artificial intelligence throughout the year, exploring topics such as large model governance, algorithm ethics, digital labor, and intelligent society [9]. - Several original articles garnered significant attention, with the highest single article reaching over 50,000 views, indicating a strong public resonance with the discussions [9]. - The institute maintained a commitment to daily updates, producing 248 issues of the "Daily AI Dispatch" over 248 working days, tracking global AI policy developments, technological breakthroughs, and social impacts [9]. Group 2: Future Directions - The institute will continue to focus on social science research in the AI era, enhancing interdisciplinary dialogue and expanding the depth and breadth of public discussions [7]. - The mission remains centered on "user-centric, technology for good," aiming to promote healthy, inclusive, and sustainable development of AI [7].

Group 1 - On January 16, 2026, Alibaba-W (09988), Tencent Holdings (00700), and SMIC (00981) were the top three companies by trading volume in the Southbound Stock Connect, with transaction amounts of 40.30 billion, 34.43 billion, and 33.48 billion respectively [1] - In the Southbound Stock Connect for the Shenzhen-Hong Kong Stock Connect, Alibaba-W (09988), SMIC (00981), and Tencent Holdings (00700) also ranked as the top three, with transaction amounts of 29.23 billion, 23.54 billion, and 22.23 billion respectively [1] Group 2 - The top active companies in the Southbound Stock Connect included Alibaba-W (09988) with a net buying amount of +56.02 million, Tencent Holdings (00700) with +57.91 million, and SMIC (00981) with +510 million [2] - In the Shenzhen-Hong Kong Stock Connect, Alibaba-W (09988) had a net selling amount of -16.43 million, while SMIC (00981) recorded a net buying amount of +574 million [2]

Group 1: Industry Trends - The domestic AI large model industry is experiencing a critical turning point with intensified competition for C-end traffic and clearer commercialization paths [2][3] - Major companies are shifting focus from B-end empowerment to comprehensive efforts in the C-end market, leading to the emergence of "AI native super apps" [2][3] - The rapid growth of user engagement is evident, with ByteDance's Dola achieving over 10 million daily active users and the Kimi model from Moonlight achieving a monthly user growth rate of 170% [3][4] Group 2: Capital and Financing - The AI large model sector has seen significant capital activity, with Moonlight completing a $500 million Series C funding round, raising its valuation to $4.3 billion [4][5] - The industry is projected to generate over 10 billion in revenue by the end of 2025, indicating a shift from merely burning cash to demonstrating real monetization capabilities [4][5] - Companies are adopting differentiated capital strategies, with some focusing on immediate funding through technological advancements while others pursue long-term IPOs [4][5] Group 3: Company Developments - Alibaba's Qwen team launched several new models and applications, including the Qwen-Image-Edit model and the Qwen-Image-Layered model, enhancing capabilities in image generation and editing [11][12][14] - ByteDance's Dola and the Beanbag model have shown remarkable growth, with the latter's daily token usage surpassing 50 trillion, reflecting a tenfold increase year-on-year [9][20] - SenseTime's Kapi camera app has reached over 10 million users, becoming a leading choice in the photography app market [34] Group 4: Market Dynamics - The competition is shifting from simple parameter comparisons in chip performance to a focus on overall computational efficiency and cost-effectiveness across chips, systems, and software [6][7] - The AI large model industry is entering a phase characterized by differentiated competition and a focus on commercial performance, moving away from the narrative of merely burning cash [5][6] - The emergence of AI native applications is expected to enhance user experience and promote healthier business ecosystems [3][5]

Group 1 - Southbound funds net bought Hong Kong stocks worth 93.5808 million HKD today [1] - Notable net purchases include SMIC at 1.084 billion HKD, Hua Hong Semiconductor at 585 million HKD, Pop Mart at 141 million HKD, and Sanhua Intelligent Control at 129 million HKD [1] - Significant net sales were observed in China Mobile at 1.074 billion HKD, Alibaba Health at 461 million HKD, and CNOOC at 108 million HKD [1] Group 2 - Southbound funds have net bought Tencent for 8 consecutive days, totaling 9.68457 billion HKD [1] - Alibaba has seen net purchases for 5 consecutive days, amounting to 4.42446 billion HKD [1] - China Mobile has experienced net sales for 10 consecutive days, totaling 8.06248 billion HKD [1]

Core Viewpoint - Tencent's new game "Counter-Strike: Future" issued an apology for mistakenly distributing an in-game item worth 188 yuan to all players as a compensation, and announced plans to recover the mistakenly distributed items while providing compensation to all players [1][2]. Group 1: Incident Details - The incident occurred on the evening of January 15, when all players received an email titled "Recharge Failure Compensation," which contained the "Yinming Poison King - Moon's Oath" package priced at approximately 188 yuan [2]. - The company plans to distribute compensation items such as "Legendary Grade Random Plugin," "Legendary Titanium Leap Secret Treasure," and "Gold Gun: Pure White Supreme" to all players, with distribution completed by January 16 and a collection deadline of January 25, 24:00 [2]. Group 2: Game Background and Performance - "Counter-Strike: Future" is a major PVE shooting game developed by Tencent's TiMi Studio Group, which has undergone several major changes since its initial announcement in 2022, ultimately focusing on a multi-mode seasonal gameplay [2]. - The game was launched on January 13, 2026, and achieved over 20 million pre-registrations before its official release, topping the iOS free game chart on launch day [3]. - As of January 15, the game has attracted over 10 million new users since its launch, and it has collaborated with another Tencent game, "Delta Action," to introduce crossover items [3].

Core Insights - The report highlights the rapid growth of the proprietary cloud market in China, driven by its advantages in migration costs, security compliance, and internal system integration, making it a critical infrastructure for "intelligent" and "overseas" enterprises [1][3] - Tencent's proprietary cloud TCE has been recognized as a leader in the Frost Radar evaluation, ranking first in both the "Customer Value Index" and "Overseas Leadership Index," showcasing its comprehensive strength and market influence [1][4] Group 1: Market Trends - The proprietary cloud is evolving from a simple resource delivery platform to a "smart infrastructure system" that supports core business and AI strategies, requiring full-stack solutions that include computing power, AI frameworks, and model services [3] - The demand for proprietary cloud solutions is deepening across industries, necessitating capabilities in security compliance, independent innovation, and collaboration from core to edge [3] Group 2: Tencent's Positioning - Tencent's TCE has established a leading position in customer value and overseas expansion by leveraging technology to enhance customer outcomes, aiming to support various industries in their digital transformation [4] - In the financial sector, TCE has become the preferred choice for major financial institutions' cloud transformation, exemplified by its support for China UnionPay in expanding its multi-center financial cloud architecture [4] - In the public sector, TCE's "one cloud, multiple cores" government cloud platform supports over 80 government systems in Shanghai's Xuhui District, significantly improving urban operational efficiency and risk management [4] Group 3: Technological Innovations - TCE maintains a core advantage of "same-source, same-structure," providing users with a consistent experience akin to public cloud services, enabling seamless use of full-stack services in a private environment [4][5] - TCE has achieved multiple domestic certifications for security compliance, establishing a comprehensive security protection system from infrastructure to application layers, which is crucial for industries with high security requirements [5] - The proprietary cloud is expected to focus on AI-native capabilities, cloud-edge collaboration, and intelligent operations as key development trends, with Tencent committed to continuous innovation and application deepening [5]

Market Overview - The Hong Kong stock index opened high but closed lower, with the Hang Seng Index down 0.29% at 26,844.96 points, the Hang Seng Tech Index down 0.11% at 5,822.18 points, the National Enterprises Index down 0.5% at 9,220.81 points, and the Red Chip Index down 0.34% at 4,139.41 points [1] Company News - Tencent Holdings (00700.HK) repurchased 1.017 million shares for HKD 636 million at a price range of HKD 619-632 [2] - Xiaomi Group (01810.HK) repurchased 3.9 million shares for HKD 148 million at a price range of HKD 37.86-37.92 [3] - Six Fortune Group (00590.HK) reported a retail value increase of 26%, retail income increase of 17%, and same-store sales increase of 15% in Q3, exceeding expectations [3] - China Southern Airlines (01055.HK) reported a 11.89% increase in passenger capacity and a 19.28% increase in cargo capacity for December 2025 [6] Industry Insights - Tianfeng Securities noted that the Hong Kong stock market has a basis for short-term valuation recovery and sentiment improvement, but upward momentum may be constrained by high overseas interest rates [7] - The firm suggested a focus on technology and consumer sectors that are relatively undervalued [7] - According to Huatai Securities, the market is experiencing a shift towards a bullish sentiment, with historical data indicating a high probability of price increases following a period of panic [8] - Industry recommendations include prioritizing leading companies in the AI sector and exploring opportunities in insurance, banking, energy, and new consumption areas [8]