Investment Rating - The report maintains a "Buy" rating for Tencent Holdings [5] Core Views - Tencent's Q1 2025 revenue reached 180 billion RMB, a year-on-year increase of 13%, with a gross margin improvement from 53% to 56% driven by high-margin businesses such as WeChat Video Accounts and local games [1][3] - Non-GAAP net profit attributable to shareholders was approximately 61.3 billion RMB, reflecting a 22% year-on-year growth [1][3] - The report projects Tencent's revenue for 2025-2027 to be 735.8 billion, 801.6 billion, and 862.9 billion RMB respectively, with non-GAAP net profits of approximately 256.6 billion, 286.8 billion, and 314.9 billion RMB [3][12] Revenue Breakdown - Value-added services revenue for the quarter was 92.1 billion RMB, up 17% year-on-year, with local game revenue at 42.9 billion RMB, a 24% increase [1][2] - Financial technology and enterprise services revenue was 54.9 billion RMB, a 5% increase year-on-year [1] - Advertising revenue reached 31.9 billion RMB, growing 20% year-on-year, primarily driven by strong demand for Video Accounts and Mini Programs [1][2] Business Growth Drivers - The gaming business showed strong growth, with both local and international game revenues exceeding 20% growth, driven by popular titles [2] - Advertising growth was supported by AI-driven technology upgrades, significantly improving ad click-through rates [2] - Tencent's commitment to AI development is evident with a capital expenditure of 27.5 billion RMB and a 21% increase in R&D expenses [3] Financial Projections - The report forecasts Tencent's total revenue to grow at a CAGR of approximately 10% from 2023 to 2027, with a projected gross margin improvement [12] - Non-GAAP EPS is expected to rise from 16.4 RMB in 2023 to 34.0 RMB by 2027 [4][12] - The report anticipates a decrease in the P/E ratio from 28.6 in 2023 to 13.8 in 2027, indicating potential valuation improvement [4][12]

Group 1 - Many investors view Tencent Holdings through a geopolitical lens due to uncertain regulatory cycles and geopolitical tensions [1] - The presence of ongoing oversight from officials contributes to the cautious sentiment among investors regarding Chinese companies [1] Group 2 - The article highlights the challenges faced by Chinese companies, including Tencent, in the current investment climate [1]

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings [6] Core Views - Tencent's Q1 2025 results exceeded expectations, driven by strong performance in gaming and advertising, supporting long-term AI investments [1] - The company is expected to leverage high-quality growth from existing businesses to enhance AI investments [1] Revenue and Profitability - Total revenue for Q1 2025 was 180 billion RMB, a year-on-year increase of 13% - Gross profit reached 100.5 billion RMB, with a gross margin of 55.8%, up 3 percentage points year-on-year - Non-IFRS operating profit was 69.3 billion RMB, an 18% increase year-on-year, with an adjusted operating margin of 38.5% [1] - Non-IFRS net profit was 61.3 billion RMB, a 22% increase year-on-year, with an adjusted net margin of 34.1%, up 3 percentage points [1] Business Segments Value-Added Services - Revenue from value-added services was 92.1 billion RMB, a 17% year-on-year increase - Domestic gaming revenue was 42.9 billion RMB, up 24% year-on-year, with significant contributions from long-standing games [2] - International gaming revenue was 16.6 billion RMB, a 23% increase year-on-year, driven by popular titles [2] - Social network revenue was 32.6 billion RMB, a 7% increase year-on-year, with music subscription revenue growing by 17% [2] Marketing Services - Marketing services revenue was 31.9 billion RMB, a 20% year-on-year increase, benefiting from enhanced user engagement and AI upgrades [3] - Significant growth in WeChat's marketing services, particularly from video accounts and mini-programs [3] Financial Technology and Enterprise Services - Revenue from financial technology and enterprise services was 54.9 billion RMB, a 5% year-on-year increase, with notable growth in cloud services and AI-related income [4] Financial Forecast - Projected revenues for 2025, 2026, and 2027 are 735.9 billion RMB, 803.3 billion RMB, and 878.2 billion RMB respectively - Non-IFRS net profits for the same years are expected to be 260 billion RMB, 280.9 billion RMB, and 309.2 billion RMB respectively [4][5]

Summary of Tencent Holdings 1Q25 Earnings Call Company Overview - **Company**: Tencent Holdings - **Industry**: Internet Services - **Date of Report**: 15 May 2025 Key Financial Highlights - **1Q25 Performance**: - Revenue increased by **13% YoY**, exceeding expectations - Adjusted Operating Profit (OP) and Net Profit (NP) grew by **18%** and **22% YoY**, respectively, both beating estimates by **4%** due to Gross Profit Margin (GPM) expansion [2][11] Core Business Segments 1. **Gaming**: - **Near Term**: 1Q25 saw robust growth exceeding **20%** from existing and new games, alleviating concerns about tougher comparisons in 2H25 - Notable performances from games like HoK and CrossFire, with CrossFire becoming the **3rd largest mobile game in China** - Projected revenue growth of **+14%** for domestic games and **+22%** for international games in 2025E [3] 2. **Advertising**: - **Near Term**: Advertising revenue grew by **20%** in 1Q25, driven by enhancements in ad technology and increased inventory - Anticipated to outpace industry growth of **17%** in 2025E [4] 3. **Mini Shops**: - **Near Term**: Strong GMV growth due to accelerating merchant onboarding - Long-term potential compared to Mini Programs' GMV of **Rmb8 trillion** in 2024, with Mini Shops projected at **cRmb200 billion** [5] 4. **AI Monetization**: - **Near Term**: Management optimistic about navigating GPU supply issues - Long-term plans include adding AI features to products like Weixin, leveraging a user base of **1.4 billion** with an average engagement of **1.5 hours daily** [6] Margin and Profitability Outlook - **1Q25 Margin**: Adjusted NP growth of **18%** against **13%** revenue growth - Management expects positive operating leverage and incremental AI revenue to support margins [11] Valuation and Price Target - **Price Target**: Increased to **HK$710.00** from **HK$700.00** - **Current Price**: **HK$521.00** as of 14 May 2025 - **Market Cap**: **HK$4,837 billion** (approximately **US$620 billion**) [7][13] Earnings Estimates - **2025E**: Revenue projected at **Rmb742.8 billion**, with adjusted NP expected to grow by **19%** [15] Investment Thesis - Tencent's results provide enhanced clarity regarding earnings amidst macro uncertainties - Management emphasizes a "long runway" for growth across various business lines, including gaming, advertising, e-commerce, and AI monetization - Despite premium valuation, Tencent offers high earnings visibility and growth potential [12] Risks - Key risks include competitive landscape changes, execution of new business strategies, integration of investments, rising operational costs, and regulatory challenges [19] Conclusion - Tencent Holdings demonstrates strong growth across its core segments, with a positive outlook for future earnings driven by strategic initiatives in gaming, advertising, and AI. The company maintains a "Buy" rating with a revised price target reflecting its growth potential and market position.

Summary of Tencent Holdings (700 HK) Conference Call Company Overview - **Company**: Tencent Holdings - **Sector**: Internet Software & Services - **Market Cap**: HKD 4,787,479 million (USD 613,996 million) [13][5] Key Discussion Points 1. **Strong Growth Prospects**: - Tencent's 1Q25 results exceeded expectations, driven by robust performance in domestic games and advertising. Revenue growth for domestic games is revised from 8% to 13% for 2025 [2][9] - The company reported a total revenue of RMB 180,022 million for 1Q25, reflecting a 13% year-over-year increase [17][9] 2. **Game Performance**: - Domestic games revenue grew by 24% year-over-year, significantly above the consensus of 15%, with key titles like Honour of Kings and Delta Force contributing to this growth [18][9] - International games revenue also saw a 23% increase, driven by titles such as Brawl Stars and PUBG Mobile [19][9] 3. **Advertising and Marketing Services**: - Marketing services revenue increased by 20% year-over-year, supported by higher user engagement and AI enhancements to the ad platform [21][9] - Video Account ad revenue grew over 60% year-over-year, indicating strong demand for advertising tools [21][9] 4. **AI Integration**: - Tencent is integrating AI features into its Weixin ecosystem, which is expected to enhance content generation and improve advertising effectiveness over time [2][9] - The company is leveraging its unique social graphs and community capabilities to differentiate its AI offerings from competitors [3][9] 5. **Financial Performance**: - Non-IFRS net income for 1Q25 was RMB 61,329 million, a 22% increase year-over-year [17][9] - The gross profit margin (GPM) improved by 2 percentage points to 56% [23][9] 6. **Capital Expenditure and Share Buybacks**: - Tencent plans to repurchase at least HKD 80 billion worth of shares in 2025, having already repurchased HKD 21 billion year-to-date [54][56] - The company incurred RMB 27 billion in capital expenditures in 1Q25, representing 15% of revenue [17][9] 7. **Future Outlook**: - Revenue for 2025 is projected at RMB 728,386 million, reflecting a 10% year-over-year growth [53][9] - The target price remains unchanged at HKD 630, indicating a potential upside of 20.9% from the current share price of HKD 521 [9][13] Financial Highlights - **Revenue Breakdown for 1Q25**: - Value-Added Services (VAS): RMB 92,133 million, up 17% YoY - Marketing Services: RMB 31,853 million, up 20% YoY - Fintech and Business Services: RMB 54,907 million, up 5% YoY [17][9] - **Earnings Per Share (EPS)**: - 2025 EPS estimate raised to CNY 28.72, reflecting a 1.6% increase from previous estimates [6][9] Risks and Considerations - Potential risks include regulatory challenges in the gaming sector, macroeconomic slowdowns affecting advertising budgets, and changes in user preferences [59][9] Conclusion - Tencent Holdings continues to demonstrate strong growth across its gaming and advertising segments, with significant investments in AI and share buybacks. The company maintains a positive outlook for 2025, supported by robust financial performance and strategic initiatives.

Group 1 - Astrada Advisors provides actionable recommendations aimed at enhancing portfolio performance and uncovering alpha opportunities, backed by a strong track record in investment research at leading global investment banks [1] - The company specializes in technology, media, internet, and consumer sectors across North America and Asia, excelling in identifying high-potential investments and navigating complex industries [1] - Astrada Advisors leverages extensive local and global experience to offer unique insights on market developments, regulatory changes, and emerging risks [1] Group 2 - The research conducted by Astrada Advisors integrates rigorous fundamental analysis with data-driven insights, providing a nuanced understanding of key trends, growth drivers, and competitive landscapes [1] - The focus of the company is to empower investors with timely research and a comprehensive view of industry dynamics, especially in volatile markets or when exploring new trends [1] - Astrada Advisors is committed to delivering superior insights to facilitate informed investment decisions [1]

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings (00700.HK) [1] Core Insights - Tencent's 1Q25 financial results exceeded expectations, with total revenue reaching 180 billion CNY, a year-over-year increase of 13%, surpassing Bloomberg's consensus by 3% [1][8] - The NON-IFRS net profit attributable to shareholders was 61.3 billion CNY, reflecting a year-over-year growth of 22%, also exceeding Bloomberg's consensus by 3% [1][8] - The target price range is set between 545.69 and 606.33 HKD, with the current price at 508.00 HKD [1] Revenue Breakdown - The revenue structure for 1Q25 is as follows: - Gaming: 59.5 billion CNY (33% of total revenue), YOY +24% - Financial Technology and Enterprise Services: 54.9 billion CNY (31% of total revenue), YOY +5% - Social Networks: 32.6 billion CNY (18% of total revenue), YOY +7% - Marketing Services: 31.9 billion CNY (18% of total revenue), YOY +20% [15][26] Business Performance - The gaming segment continues to show strong performance, with both domestic and international markets exceeding expectations. Domestic gaming revenue was 42.9 billion CNY, YOY +24%, while international gaming revenue was 16.6 billion CNY, YOY +23% [20][18] - The social network segment's revenue growth was driven by mobile games, TME membership growth, and mini-game revenue sharing [26] - Marketing services revenue exceeded expectations due to increased user engagement and AI-driven advertising solutions, reaching 31.9 billion CNY, YOY +20% [30] Financial Projections - Revenue forecasts for 2025-2027 have been slightly adjusted to 728.6 billion CNY, 784.5 billion CNY, and 835.6 billion CNY respectively, with year-over-year growth rates of 10%, 8%, and 7% [5] - The NON-IFRS net profit projections for the same period are 256.0 billion CNY, 288.6 billion CNY, and 313.1 billion CNY, with year-over-year growth rates of 15%, 13%, and 9% [5] Capital Expenditure - Capital expenditure (CAPEX) for the quarter reached 23.0 billion CNY, a year-over-year increase of 60%, representing 13% of total revenue [32]

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings (00700.HK) [1] Core Views - Tencent's 1Q25 financial results exceeded expectations, with total revenue reaching 180 billion CNY, a year-over-year increase of 13%, surpassing Bloomberg's consensus by 3% [1][8] - The NON-IFRS net profit attributable to shareholders was 61.3 billion CNY, up 22% year-over-year, also exceeding Bloomberg's consensus by 3% [1][8] - The target price range is set between 545.69 and 606.33 HKD, with the current price at 508.00 HKD [1] Financial Performance Summary - Total revenue for 1Q25 was 1800 billion CNY, with a year-over-year growth of 13% [1][8] - NON-IFRS net profit for the same period was 613 billion CNY, reflecting a year-over-year increase of 22% [1][8] - The company achieved a capital expenditure (CAPEX) of 23 billion CNY, a significant year-over-year increase of 60%, representing 13% of total revenue [1][30] Business Segment Performance - **Gaming**: Revenue from the gaming segment reached 595 billion CNY, with a year-over-year growth of 24%, marking the highest growth rate in five quarters [1][18] - **Social Networks**: Revenue from social networks was 326 billion CNY, with a year-over-year increase of 7% [1][26] - **Marketing Services**: This segment generated 319 billion CNY in revenue, reflecting a year-over-year growth of 20% [1][30] - **Financial Technology and Enterprise Services**: Revenue was 549 billion CNY, with a year-over-year growth of 5% [1][32] Future Outlook - The report projects a revenue forecast for 2025-2027 of 7286 billion CNY, 7845 billion CNY, and 8356 billion CNY respectively, with year-over-year growth rates of 10%, 8%, and 7% [5] - The NON-IFRS net profit forecast for the same period is adjusted to 2560 billion CNY, 2886 billion CNY, and 3131 billion CNY, with year-over-year growth rates of 15%, 13%, and 9% [5] Valuation Metrics - The report estimates the EPS for 2025-2027 to be 28.00 CNY, 31.85 CNY, and 34.87 CNY respectively, with corresponding target PE ratios of 18-20x for 2025 [5]

Investment Rating - The investment rating for Tencent Holdings is "Buy" (maintained) [1] Core Views - Tencent's Q1 revenue reached 1800.2 billion CNY, representing a year-over-year increase of 12.9% and a quarter-over-quarter increase of 4.4%, exceeding consensus expectations of 1756.0 billion CNY [4] - The company's gross profit for Q1 was 1004.9 billion CNY, up 19.8% year-over-year and 10.9% quarter-over-quarter, also surpassing the consensus estimate of 947.7 billion CNY [4] - Adjusted net profit for Q1 was 613.3 billion CNY, reflecting a year-over-year growth of 22.0% and a quarter-over-quarter increase of 10.9%, exceeding the consensus forecast of 596.8 billion CNY [4] Summary by Sections Q1 Performance - Tencent's Q1 revenue was 1800.2 billion CNY, with a gross profit of 1004.9 billion CNY and adjusted net profit of 613.3 billion CNY, all beating market expectations [4] Value-Added Services (VAS) - Domestic game revenue in Q1 was 429 billion CNY, up 24% year-over-year, driven by seasonal peaks in popular games like "Honor of Kings" and "Crossfire Mobile" [5] - International game revenue reached 166 billion CNY, a 22% year-over-year increase, supported by titles such as "Brawl Stars" and "PUBG MOBILE" [5] Marketing Business - Marketing revenue for Q1 was 319 billion CNY, a 20% year-over-year increase, driven by strong demand for advertising on platforms like WeChat and video accounts [6] - The combined monthly active users (MAU) for WeChat and WeChat reached 1.402 billion, a 3% year-over-year increase [6] Financial Technology - Financial technology revenue was 549 billion CNY, a 5% year-over-year increase, with gross margin improving to 50% [7] AI Investments - Tencent's capital expenditure in Q1 was 274.8 billion CNY, a 91% year-over-year increase, reflecting ongoing investments in AI across various business lines [8] Profit Forecast - The projected net profits for Tencent for 2025, 2026, and 2027 are 2560.2 billion CNY, 2973.9 billion CNY, and 3384.8 billion CNY respectively, with a stable pipeline of new games and AI integration across business lines [10]

Group 1 - Tencent reported a beat on its 1Q25 revenue while earnings were largely in line with expectations, indicating a consistent performance narrative [1] - The quarter's results reflect ongoing trends that have been observed in previous periods, suggesting stability in the company's operational performance [1] Group 2 - Astrada Advisors specializes in delivering actionable recommendations aimed at enhancing portfolio performance and uncovering alpha opportunities, backed by a strong track record in investment research [2] - The firm has expertise in technology, media, internet, and consumer sectors across North America and Asia, allowing it to identify high-potential investments and navigate complex industries effectively [2] - Astrada Advisors integrates rigorous fundamental analysis with data-driven insights to provide a nuanced understanding of key trends, growth drivers, and competitive landscapes [2]