First Shanghai Securities·2025-11-19 08:53Investment Rating - The report maintains a "Buy" rating for the company, with a target price raised to HKD 790, indicating a potential upside of 26.7% from the last closing price [4][55]. Core Insights - The company's Q3 2025 performance showed robust growth driven by AI efficiency and ecosystem expansion, with revenue reaching RMB 193 billion, a year-on-year increase of 15% and a quarter-on-quarter increase of 5% [1][6]. - Non-IFRS net profit for Q3 2025 was RMB 70.6 billion, reflecting an 18% year-on-year growth and a 12% quarter-on-quarter growth, indicating improved operational efficiency and profit quality [1][6]. - The gaming segment showed strong performance, with domestic game revenue of RMB 42.8 billion, up 15% year-on-year, and international game revenue of RMB 20.8 billion, up 43% year-on-year [2][8]. Summary by Sections Financial Performance - Q3 2025 revenue was RMB 193 billion, with a gross profit of RMB 108.8 billion, resulting in a gross margin of 56%, up from the previous year [1][6][10]. - The increase in gross profit was attributed to high-quality advertising inventory and improved content structure in gaming [10]. Gaming Business - The value-added services revenue reached RMB 95.9 billion, a 16% year-on-year increase, with strong contributions from social networking and gaming [2][8]. - Key titles like "Delta Force" and "Honor of Kings" maintained strong daily active users (DAU), with "Honor of Kings" achieving a historic high of 139 million DAU [2][8]. Marketing Services - Marketing services revenue grew by 21% year-on-year to RMB 35.8 billion, driven by the expansion of core ecosystem scenarios like video accounts and mini-programs [3][9]. - AI-driven improvements in eCPM and automated ad placement through AIM+ contributed significantly to revenue growth [27][29]. Financial Technology and Enterprise Services - Financial technology and enterprise services revenue reached RMB 58.2 billion, a 10% year-on-year increase, supported by strong online and offline payment activities [3][44]. - The company maintained a low bad debt ratio in its consumer credit business, reflecting its strong risk management capabilities [44][46]. Future Outlook - The report anticipates continued high-quality growth in advertising and gaming, driven by the recovery of advertising budgets and the ongoing expansion of the ecosystem [40][55]. - The integration of AI in advertising is expected to enhance efficiency and contribute to a new phase of sustainable growth [40][55].