Hua Er Jie Jian Wen·2025-10-13 05:59Core Viewpoint - Goldman Sachs reiterated a "buy" rating for Tencent Holdings and raised its target price, indicating that despite a significant stock price increase this year, its valuation remains reasonable compared to global peers. Tencent is viewed as a key beneficiary of AI applications in the Chinese market [1][3]. Group 1: Stock Performance and Valuation - Goldman Sachs analysts raised Tencent's 12-month target price from HKD 701 to HKD 770, noting a 51% increase in Tencent's stock price year-to-date, outperforming the Hang Seng Tech Index's 44% rise [1]. - The current valuation corresponds to a projected non-IFRS P/E ratio of 19 times for 2026, and 16 times when excluding its investment portfolio. This is lower than global tech giants like Meta (24 times) and Google (23 times) [4]. Group 2: Financial Performance Expectations - For the upcoming Q3 earnings report on November 13, the market is expected to focus on AI applications, capital expenditure outlook, and growth visibility in core businesses like gaming and advertising. Q3 revenue is projected to grow by 13% year-on-year, with earnings per share expected to increase by 18% [3][4]. - The report anticipates that Tencent's operating profit margin will expand by 212 basis points in Q3 2025, although the gap between profit growth and revenue growth may narrow due to rising costs associated with AI [10]. Group 3: AI and Business Growth - Tencent is recognized as one of the best-positioned companies in China's internet sector for AI applications, with AI expected to enhance nearly all business lines, including gaming, advertising, fintech, cloud services, and e-commerce [6]. - The company achieved a significant milestone with its self-developed Hunyuan Image 3.0 model, ranking first in a global benchmark for text-to-image models, outperforming leading competitors [6]. Group 4: Capital Expenditure and Cloud Business - Based on optimistic AI demand forecasts, Goldman Sachs raised its capital expenditure predictions for Tencent from RMB 300 billion to RMB 350 billion for the fiscal years 2025 to 2027, with annual expenditures projected at RMB 100 billion, RMB 117 billion, and RMB 129 billion respectively [7]. - The revenue growth forecast for Tencent's cloud business has been significantly increased, with expected growth rates of 11%, 25%, and 20% for 2025, 2026, and 2027, respectively [7]. Group 5: Core Business Performance - The gaming segment is expected to see revenue growth of 16% and 18% year-on-year for Q3 and the full year of 2025, driven by new game releases and the steady performance of established titles [10]. - The advertising segment is projected to grow by 19% in both Q3 and the full year of 2025, supported by AI-driven advertising technology improvements and new inventory releases [10].