TENCENT(HK:00700)2025-05-15 02:01Investment Rating - The report has an Overweight (OW) recommendation on Tencent bonds maturing in 2029, 2030, 2031, 2038, 2041, 2049, 2050, 2051, 2060, and 2061, and a Marketweight (MW) recommendation on bonds maturing in 2026 and 2028 [4][15]. Core Insights - Tencent's revenue grew by 13% year-over-year (YoY) to RMB180.0 billion in 1Q25, driven by strong performance in online advertising (+20% YoY) and value-added services (+17% YoY) [1][7]. - The company's adjusted EBITDA increased by 18% YoY to RMB81.6 billion, with an adjusted EBITDA margin of 45.3%, reflecting a 1.9 percentage point (ppt) improvement YoY [1][7]. - Tencent's net debt position was small at RMB34.5 billion, with total equity increasing by 7% to RMB1,122.9 billion [2][7]. - The gross leverage ratio slightly increased to 1.3x, while the debt-to-capitalization ratio rose to 25.6% [2][7]. - The report highlights Tencent's favorable position in the gaming industry and the stable regulatory environment as key factors for its growth [4][15]. Financial Summary - In 1Q25, Tencent's gross profit grew by 20% YoY to RMB100.5 billion, with a gross margin improvement of 3.2 ppt YoY to 55.8% [1][7]. - The company's cash and short-term investments amounted to RMB351.3 billion, covering its short-term debt 6.6 times [2][7]. - Year-to-date, TENCNT bonds have tightened by an average of 1 basis point in z-spread, outperforming BABA bonds by 8 basis points [3][7].