HTSC·2025-08-14 03:06Investment Rating - The report maintains a "Buy" rating for Tencent with a target price of 742.19 HKD, up from the previous 614.34 HKD [6][28]. Core Insights - Tencent's Q2 revenue grew by 14.5% year-on-year, exceeding consensus expectations by 3%. Key business segments such as value-added services, advertising, and fintech saw year-on-year growth of 16%, 20%, and 10% respectively, with corresponding improvements in gross margins [1][5][28]. - The company is positioned as a leading developer in the shooting game sector, with significant upcoming titles like "Delta Action" and "Valorant Mobile" expected to drive player engagement and monetization [1][12][15]. - Advertising revenue increased by 20% year-on-year, driven by strong performance in video accounts and mini-programs, with management indicating a low impact from the recently implemented advertising tax [3][5]. - Financial technology revenue exceeded expectations by 3%, with notable growth in consumer loans and payment services, while cloud business is expected to expand as AI demand increases [4][5]. Summary by Sections Q2 Performance - Tencent's Q2 adjusted net profit increased by 10% year-on-year, surpassing expectations by 3%, and a 22% increase when excluding the impact of joint ventures [1][10]. - The company reported a cash capital expenditure of 229 billion for AI-related investments, remaining stable quarter-on-quarter [1][10]. Gaming Sector - The value-added services revenue grew by 16%, with self-developed games contributing significantly to this growth. Domestic and overseas game revenues increased by 17% and 35% respectively, exceeding consensus expectations [2][11]. - "Delta Action" has become a top game, with its daily active users surpassing 20 million in July, indicating strong market performance [11][15]. Advertising and Fintech - Advertising revenue growth of 20% was driven by video accounts and mini-programs, with management noting that AI has improved click-through rates and overall advertising effectiveness [3][5]. - Fintech revenue grew by 10%, with a gross margin of 52.1%, attributed to an increase in consumer loans and cost efficiencies in cloud services [4][5]. Future Outlook - Revenue forecasts for Tencent have been adjusted upward for 2025-2027, with expected growth rates of 2.7%, 4.7%, and 4.8% respectively, driven by the continued expansion of WeChat mini-stores and AI product integration [5][28]. - The adjusted net profit estimates for 2025, 2026, and 2027 are projected to be 255.7 billion, 289 billion, and 330.4 billion RMB respectively [5][28].