Investment Rating - The investment rating for Tencent Holdings is "Outperform the Market" [4][25][28] Core Views - Tencent's revenue growth accelerated, driven by strong performance in advertising and gaming, with a year-on-year revenue increase of 11% in Q4 2024 [1][11] - The company is actively investing in AI applications, with R&D expenses increasing by 16% year-on-year to 31.4 billion yuan in Q4 2024, indicating a commitment to AI development [2][14] - The gaming segment showed robust growth, with online gaming revenue rising by 20% year-on-year, supported by a strong pipeline of evergreen games [3][17] - Financial technology and enterprise services revenue grew by 3% year-on-year, with a notable recovery in payment services [4][23] - The company plans to increase its annual dividend by 32% to 4.50 HKD per share and intends to repurchase shares worth at least 80 billion HKD [8][25] Summary by Sections Revenue and Profitability - In Q4 2024, Tencent achieved revenue of 172.4 billion yuan, a year-on-year increase of 11.1%, primarily driven by advertising and gaming [1][11] - Adjusted operating profit for Q4 2024 was 59.5 billion yuan, up 20% year-on-year, with a Non-IFRS net profit of 55.3 billion yuan, reflecting a 30% increase [1][11] R&D and Capital Expenditure - R&D expenses in Q4 2024 reached 31.4 billion yuan, a 16% increase year-on-year, with expectations for continued growth in 2025 [2][14] - Capital expenditures surged to 36.6 billion yuan in Q4 2024, a remarkable increase of 386% year-on-year, with projections for 2025 to account for 12-15% of revenue [2][14] Gaming and Advertising - Online gaming revenue for Q4 2024 was 49.2 billion yuan, a 20% increase year-on-year, with deferred revenue at 100.1 billion yuan, up 16% [3][17] - Advertising revenue in Q4 2024 was 35 billion yuan, growing 17% year-on-year, driven by strong demand for video accounts and mini-programs [22][26] Financial Technology and Enterprise Services - Financial technology and enterprise services revenue reached 56.1 billion yuan in Q4 2024, a 3% year-on-year increase, with signs of recovery in payment services [4][23] - AI cloud revenue is expected to nearly double in 2024, reflecting the company's strategic focus on AI capabilities [4][23] Shareholder Returns - Tencent plans to increase its annual dividend by 32% to 4.50 HKD per share and aims to repurchase shares worth at least 80 billion HKD [8][25]

Investment Rating - The report assigns a "Buy" rating for Tencent Holdings (700 HK) with a target price raised to HKD 583, indicating a potential upside of 8.0% from the current price of HKD 540 [1][4][50]. Core Insights - The report highlights that AI applications are expected to rapidly integrate into Tencent's ecosystem, contributing to revenue growth. The anticipated revenue for 2025 is projected to reach RMB 713.8 billion, reflecting an 8.1% year-on-year growth [2][8]. - The report emphasizes strong performance in various segments, including a 20% increase in gaming revenue and a 60%+ growth in video advertising revenue, driven by AI enhancements [7][8]. Financial Overview - Revenue projections for Tencent are as follows: - 2023: RMB 609,015 million - 2024: RMB 660,257 million - 2025E: RMB 713,818 million - 2026E: RMB 767,880 million - 2027E: RMB 818,920 million - Year-on-year growth rates are expected to decline gradually from 9.8% in 2023 to 6.6% in 2027 [3][52]. - Net profit forecasts are: - 2023: RMB 157,688 million - 2024: RMB 222,703 million - 2025E: RMB 244,774 million - 2026E: RMB 268,648 million - 2027E: RMB 289,453 million - The report anticipates a significant increase in earnings per share (EPS), from RMB 16.33 in 2023 to RMB 31.91 in 2027 [3][52]. Segment Performance - The report details segment performance for Q4 2024: - Total revenue reached RMB 172,446 million, up 11% year-on-year - Online gaming revenue increased by 23% year-on-year, with local games contributing significantly - Marketing services revenue grew by 17%, driven by video and search advertising [8][9]. - The report notes that the gross margin improved to 53% due to the growth of high-margin businesses [7][8]. Valuation - The report estimates a price-to-earnings (P/E) ratio of 19 times for 2025, with a projected share buyback of HKD 80 billion and dividends of HKD 41 billion, enhancing shareholder returns [7][8].