Tencent Holdings Research Summary Company Overview - **Company**: Tencent Holdings - **Sector**: Internet/e-Commerce - **Description**: Tencent is a leading provider of messaging services, value-added services, online games, advertising, and e-commerce in China. The social app Weixin has over 1 billion domestic accounts, and Tencent also offers enterprise services like Cloud and IT solutions [11][12]. Key Financial Metrics - **3Q25 Net Income**: Adjusted net income was RMB 70.6 billion, up 18% YoY, exceeding consensus by 7% [16]. - **Revenue**: 3Q25 revenue reached RMB 192.9 billion, a 15% YoY increase [16]. - **Capex**: 3Q25 capital expenditure was RMB 13 billion, below consensus due to chip availability issues [1]. - **2025E Revenue**: Expected to be RMB 750 billion, with a gross profit of RMB 423 billion [15]. Investment Rating and Price Objective - **Rating**: BUY - **Price Objective**: HKD 780, based on a sum-of-the-parts (SOTP) valuation [3][17]. Growth Drivers - **AI Strategy**: Tencent is focusing on AI applications, integrating AI-supported use cases into Weixin. The company is expected to prioritize internal chip use over external sales due to supply constraints [1]. - **Gaming Segment**: Anticipated growth from titles like Delta Force, Valorant Mobile, and Honor of Kings (HoK) [2]. - **Advertising Revenue**: Growth expected from Video Account and Weixin search ads, which have higher gross margins [2]. Financial Projections - **2025E Non-IFRS Diluted EPS**: Expected to be RMB 28.13, reflecting a 18.8% YoY increase [4][15]. - **2026E Revenue**: Projected to reach RMB 821 billion, with a gross profit margin of 57% [15]. - **Free Cash Flow**: Expected to be RMB 145.9 billion in 2025 [9]. Risks and Challenges - **Competition**: Intensifying competition in the gaming and advertising sectors [3]. - **Regulatory Uncertainty**: Potential regulatory challenges in fintech and gaming [18]. - **Macroeconomic Factors**: A weaker macro environment could impact advertising and fintech revenues [18]. Additional Insights - **Market Position**: Tencent maintains a strong market leadership position across various segments, with significant growth potential in monetization through Weixin [12]. - **AI and E-commerce Potential**: The company has substantial upside potential from AI applications and e-commerce growth [12]. - **Debt Management**: Net debt is projected to decrease significantly by 2027, indicating improved financial health [9]. Conclusion Tencent Holdings is positioned for continued growth driven by its strong market presence, innovative AI strategies, and robust gaming and advertising segments. However, investors should remain cautious of competitive pressures and regulatory risks that could impact future performance.