Core Viewpoint - The report from CMB International forecasts Tencent Holdings (00700) to achieve adjusted EPS growth rates of 21%/18%/9% for 2025-2027, with target price raised to HKD 729, maintaining a "buy" rating [1] Financial Performance - In Q3 2025, total revenue increased by 15% year-on-year to RMB 192.87 billion, exceeding expectations by 4%, with gaming revenue up 23%, social revenue up 4%, marketing revenue up 21%, and financial enterprise services up 10% [2] - Gross profit rose by 22% year-on-year, with gross margin improving by approximately 3.3 percentage points to 56.4%, driven by high-margin businesses such as domestic games, video accounts, and WeChat search, alongside ongoing cost optimization in cloud services [2] - Adjusted earnings per share reached RMB 7.58, a 19% increase year-on-year, surpassing expectations by 6% [2] Operational Highlights - Domestic game revenue grew by 15% year-on-year, benefiting from titles like Delta Action, Valorant, and Honor of Kings; overseas game revenue surged by 43%, driven by Brawl Stars, new games, and studio mergers [3] - Social revenue increased by 5%, supported by live streaming on video accounts and paid music services [3] - Marketing revenue rose by 21%, enhanced by new advertising products and AI-driven advertising effectiveness [3] - Financial technology revenue saw high single-digit growth, with accelerated growth in commercial payment transaction volume; enterprise services experienced double-digit growth, driven by merchant technology service fees and significant growth in cloud storage data management [3] Outlook and Valuation - The company expects game revenue growth rates of 21%/9% for 2025/2026, social revenue growth of 7% for both years, advertising growth of 19%/13%, and FBS growth of 9% for both years, indicating potential for upward adjustments [4] - Capital expenditure is projected to be below 10% of revenue in 2025, with an absolute value expected to be around RMB 80 billion, primarily for product iteration and upgrades, rather than focusing on computing power as a core business [4]

Core Viewpoint - The report from CMB International indicates an upward adjustment in Tencent Holdings' (00700) adjusted EPS growth forecast for 2025-2027, with expected growth rates of 21%/18%/9%, and a target price increase to HKD 729, maintaining a "buy" rating [1] Group 1: Financial Performance - In Q3 2025, Tencent's total revenue increased by 15% year-on-year to RMB 192.87 billion, exceeding expectations by 4%, driven by gaming (+23%), social (+4%), marketing (+21%), and financial enterprise services (+10%) [2] - Gross profit rose by 22% year-on-year, outpacing revenue growth, with a gross margin improvement of approximately 3.3 percentage points to 56.4%, attributed to high-margin businesses such as domestic games, video accounts, and WeChat search, along with ongoing cost optimization in cloud services [2] - Adjusted EPS reached RMB 7.58, a 19% year-on-year increase, surpassing expectations by 6% [2] Group 2: Operational Highlights - Domestic game revenue grew by 15% year-on-year, benefiting from titles like Delta Action, Valorant, and Honor of Kings; overseas game revenue surged by 43%, driven by Brawl Stars, new games, and studio mergers [3] - Social revenue increased by 5% year-on-year, supported by video account live streaming and paid music services [3] - Marketing revenue rose by 21% year-on-year, enhanced by new advertising products and AI-driven advertising effectiveness [3] - Financial technology revenue experienced high single-digit growth, with accelerated growth in commercial payment transaction volume; enterprise services saw double-digit growth, driven by merchant technology service fees and significant growth in cloud storage data management [3] Group 3: Outlook and Valuation - The report anticipates that AI technology investments will support revenue growth across Tencent's product lines, with expected gaming revenue growth of 21%/9% and advertising growth of 19%/13% for 2025/26, indicating potential for further upward adjustments [4] - Capital expenditure as a percentage of revenue is expected to be below 10% in 2025, although the absolute value is projected to exceed RMB 80 billion, primarily for product iteration and upgrades, rather than focusing on computing power as a core business [4] - The company is positioned to leverage its leading traffic supply in the consumer sector for AI application implementation [4]

Core Insights - Tencent's gaming business achieved over 20 billion yuan in international market revenue for the first time in Q3 2025, driven by strategic positioning in the shooting game sector and a "light integration" global strategy [2] - The overall revenue for Tencent's online gaming segment reached 636 billion yuan, marking a double-digit year-on-year growth [2] International Market Performance - International gaming revenue was 208 billion yuan, reflecting a 43% year-on-year increase, while domestic gaming revenue was 428 billion yuan, with a 15% year-on-year growth [2] - The growth in international markets is attributed to a "long-term strategic layout" that is now yielding results [5] - Key contributors to overseas revenue include stable earnings from mature studios, the release of acquired teams' capacities, and breakthroughs in self-developed products [6] Key Studio Contributions - Supercell, a Finnish studio under Tencent, continues to generate stable revenue with games like "Brawl Stars" and "Clash Royale," which have seen user and revenue growth [6] - Tencent's acquisition of Polish studio Techland has resulted in the successful launch of the AAA title "Dying Light 2," which quickly topped global sales charts [7] - Funcom, acquired in 2020, achieved over 1 million sales for "Dune: Awakening" within two weeks of its release [8] - Grinding Gear Games, acquired in 2018, has maintained strong performance with "Path of Exile 2," topping Steam's sales charts for eight consecutive weeks [9] Domestic Market Dynamics - Tencent's gaming business in the domestic market grew by 15%, driven by a combination of evergreen games and new product launches, particularly in the shooting genre [10] - Major titles like "Honor of Kings" and "Peacekeeper Elite" continue to perform well, with "Honor of Kings" achieving over 139 million daily active users [10] - New releases such as "Valorant: Agent's Awakening" and "Delta Force" have also shown strong user engagement and revenue performance [10] Competitive Landscape and Future Strategy - The global shooting game market is projected to reach $72.68 billion in 2024, with a compound annual growth rate of 13% from 2025 to 2032 [13] - Tencent is building a differentiated matrix in the shooting genre, with titles catering to various gameplay styles and user demographics [13] - The company aims to continue its global expansion by seeking partnerships with high-quality overseas game studios while promoting Chinese-developed games in international markets [13]

Investment Rating - The industry investment rating is "Positive" and maintained [7] Core Insights - In July, the National Press and Publication Administration approved 127 domestic game titles, including key products from Huatuo and Giant Network. The summer gaming season has seen strong performance from multiple new games, indicating a sustained high level of activity in the gaming sector [2][4] - The new game cycle, favorable policy trends, and AI catalysis are expected to drive continued improvement in the gaming sector's fundamentals, suggesting that the valuation of the gaming sector still has upward elasticity. Investors are encouraged to continue monitoring investment opportunities in this sector [2][4] Summary by Sections Game License Issuance - In July, 127 domestic games received approval, including Huatuo's "Kingshot" and Giant Network's "Famous Generals Kill." Additionally, 7 imported game licenses were granted [9] - "Kingshot" has seen significant revenue growth, doubling in May and increasing by 56% in June, ranking third in China's mobile game overseas revenue growth [9] New Game Performance - Several new games from listed gaming companies have performed strongly during the summer season. For instance, Giant Network's "Supernatural Action Group" reached the top 4 in the free game rankings and top 20 in the revenue rankings on its launch day [9] - Other notable performances include Jiubite's "Staff Sword Legend," which entered the iOS revenue rankings top 13, and Tencent's "Dungeon and Fighter Mobile," which topped the iOS revenue rankings [9] Future Outlook - The pipeline for key gaming companies is robust, with several new titles set to launch, including "Tomb Raider: Journey" and "Douluo Continent: Evil Legend" [9] - The new game cycle is expected to enhance the sector's fundamentals, with ongoing policy stability and the integration of AI in gaming likely to boost valuations and performance [9]

Core Insights - The global mobile game revenue rankings for June 2025 have been released, with Tencent's "Honor of Kings" leading the chart despite a month-over-month revenue decline [1][2]. Group 1: Top Revenue Generating Games - "Honor of Kings" by Tencent generated $143 million in June, maintaining its top position despite a $40 million drop from May's $184 million [2]. - "Whiteout Survival" and "LastWar" closely follow, with "Whiteout Survival" earning $128 million and "LastWar" at $127 million, showing a very narrow revenue gap [2]. - "Royal Match" ranked fourth with a revenue of $117 million, marking its first drop below $120 million since June 2024 [3]. Group 2: Notable Trends and Changes - "Monopoly Go" by Scopely has stabilized around $100 million for three consecutive months, while "Candy Crush Saga" saw its revenue fall below $100 million for the first time since February, now at $97 million [3]. - "PUBG Mobile" and "Peacekeeper Elite" also experienced revenue declines, with "Peacekeeper Elite" dropping from approximately $120 million in May to about $94 million in June [3]. - "Pokémon Go" saw a significant revenue increase to over $62 million due to community events, while "Pokémon TCG Pocket" faced a decline from approximately $81 million to $56 million [4]. Group 3: Rankings Beyond the Top 10 - "Genshin Impact" by miHoYo ranked 11th with $48.8 million, while "Gossip Harbor" reached $44.2 million, marking a new high [5][6]. - "Roblox" continued to struggle with a revenue drop to $39.2 million, while "Kingshot" surged to $37.3 million, climbing 13 positions [6][7]. - "Clash Royale" by Supercell achieved a revenue of approximately $36 million, marking its best performance since December 2021 [7].

Core Insights - The global mobile game revenue rankings for May 2025 have been released, showing significant performance variations among top games [1][2]. Group 1: Top Performers - "Honor of Kings" by Tencent continues to lead the chart with a revenue of $184 million in May, maintaining its position after regaining the top spot in April [1][2]. - "Whiteout Survival" and "Last War: Survival" are in a close competition for the second position, with revenues of $137 million and $133 million respectively, marking their third consecutive month of rank changes [2][3]. - "PUBG Mobile" ranks fifth with a revenue of approximately $119 million, showing a slight month-over-month increase [3]. Group 2: Revenue Fluctuations - "Royal Match" experienced significant revenue fluctuations, earning about $127 million in May after peaking at nearly $145 million in March [2]. - "Candy Crush Saga" and "Monopoly Go" followed closely with revenues of $105 million and $100 million, both showing slight declines [3]. - "Pokémon TCG Pocket" saw its revenue rebound to over $80 million, heavily influenced by new card pack releases [3]. Group 3: Rankings 11-20 - The rankings from 11 to 20 include "Gossip Harbor" at $42.4 million, "Brawl Stars" at $38.9 million, and "Honkai: Star Rail" at $38.5 million, indicating a steady performance for these titles [4][5]. - "Gossip Harbor" has shown consistent growth since its launch in mid-2022, achieving a new high in May [5]. - "Fate/Grand Order" made a notable comeback to the top 20 with a revenue of $32.1 million [5].

Core Viewpoint - Tencent's existing businesses are gradually emerging from operational cycle lows, with key games returning to healthy growth and advertising efficiency improving through integration with various platforms [1][5] Group 1: Financial Performance - Tencent's 1Q25 revenue increased by 13% year-on-year, reaching 180 billion, exceeding expectations by 2.5% [1] - Non-IFRS net profit for 1Q25 was 61.3 billion, up 22% year-on-year, surpassing expectations by 3% [1] Group 2: Gaming Business - Tencent's gaming strategy has shifted to focus on evergreen games and new game reserves, leading to a positive outlook for growth [2] - Key games like "Honor of Kings" and "Peacekeeper Elite" have shown recovery in DAU/MAU metrics, with revenue growth expected to improve in 2025 [2] - AI integration in gaming is expected to enhance content production cycles and interactivity, contributing to revenue growth [2] Group 3: Advertising Business - Advertising revenue grew by 20% in 1Q25, significantly outpacing industry averages, driven by video accounts and mini-programs [3] - AI applications in advertising are enhancing return on investment, with expectations for continued growth in 2025 [3] Group 4: Financial Technology and Cloud Services - Financial technology services showed low single-digit growth, primarily driven by loans and wealth management, while payment services faced challenges [4] - Cloud services are undergoing restructuring, focusing on profitability and optimizing gross margins, with AI capabilities expected to enhance service offerings [4]

Group 1: Company Performance - Tencent's gaming business achieved a revenue of 59.5 billion yuan in Q1 2025, with domestic market revenue at 42.9 billion yuan, a year-on-year increase of 24%, and international market revenue at 16.6 billion yuan, a growth of 23% [1] - NetEase reported a net revenue of 28.8 billion yuan in Q1 2025, with gaming and related value-added services contributing 24 billion yuan, reflecting a year-on-year growth of 12.1% [1] - Both Tencent and NetEase's classic IPs have been crucial in driving stable growth in their gaming businesses, with Tencent's "Honor of Kings" and "Crossfire Mobile" achieving record-high revenue in Q1 2025 [1] Group 2: Industry Trends - The mobile gaming industry is entering a new growth phase, with industry leaders focusing on long-term value rather than short-term gains [2][3] - A report by Moloco indicates that while overall app installation volume decreased by 0.2% over the past year, the paid user conversion rate for top apps increased by 6% [2] - High-value users, representing only 0.02% of global installations on the iOS platform, contributed 20% of total revenue for global iOS and Android games [2]

Core Insights - Tencent Holdings reported Q1 2025 revenue of 1800.22 billion yuan, a year-on-year increase of 12.9% and a quarter-on-quarter increase of 4.4% [1] - The company achieved a gross profit of 1004.93 billion yuan, up 19.8% year-on-year and 10.9% quarter-on-quarter [1] - Adjusted net profit reached 613.29 billion yuan, reflecting a year-on-year growth of 22.0% and a quarter-on-quarter growth of 10.9% [1] Gaming Business Performance - Tencent's gaming business showed accelerated growth, with domestic game revenue increasing by 24% year-on-year to 429 billion yuan, driven by popular titles like "Honor of Kings" and "Peacekeeper Elite" [1] - The new game "Delta Action" achieved a peak daily active user count of over 12 million, becoming the highest in average daily active accounts among new games released in the last three years [1] - Overseas game revenue grew by 23% year-on-year and 4% quarter-on-quarter to 166 billion yuan, supported by titles such as "Brawl Stars" and "PUBG MOBILE" [1] Advertising Business Growth - Tencent's advertising revenue for Q1 2025 reached 319 billion yuan, a year-on-year increase of 20%, exceeding market expectations [1] - The growth was attributed to strong demand from advertisers for video accounts, mini-programs, and WeChat search ads, as well as improved content recommendations driven by AI [1] AI Investment and Applications - Tencent's capital expenditure (CAPEX) for Q1 2025 was 274.76 billion yuan, accounting for 15.3% of revenue, with a significant portion directed towards AI-related business development [2] - The company is actively enhancing AI applications within its ecosystem, including context-aware AI interactions and AI tools for content creators [2] - Tencent aims to leverage its WeChat ecosystem to create an "Agentic AI" that connects social relationships, communication, and content systems [2] Future Outlook - The gaming, advertising, and cloud businesses are expected to benefit from the development of AI technology, with WeChat evolving into an "AI operating system" [3] - Revenue projections for 2025-2027 are 7243 billion yuan, 7888 billion yuan, and 8521 billion yuan, with adjusted net profits of 2452 billion yuan, 2690 billion yuan, and 2981 billion yuan respectively [3]

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings [1][7] Core Views - Tencent's gaming and advertising revenues exceeded expectations, with a focus on future AI investments and developments [1][3] - The gaming business showed accelerated growth, particularly in domestic game revenue, which increased by 24% year-on-year to 42.9 billion yuan [2] - The advertising business also outperformed market expectations, achieving a revenue of 31.9 billion yuan, a year-on-year increase of 20% [3] Financial Summary - Revenue for 2023 is projected at 609.02 billion yuan, with a year-on-year growth rate of 9.82% [1] - Adjusted net profit for 2023 is expected to be 115.22 billion yuan, reflecting a significant decline of 38.79% year-on-year [1] - The report forecasts revenue growth to 660.26 billion yuan in 2024 and 724.25 billion yuan in 2025, with adjusted net profit expected to rise to 194.07 billion yuan and 225.46 billion yuan respectively [1][7] AI Investment and Future Outlook - Tencent's capital expenditure (CAPEX) for Q1 2025 was 27.48 billion yuan, primarily focused on AI-related business development, representing 15.3% of revenue [4] - The company is actively enhancing its AI applications within its ecosystem, including AI tools for content creation and user interaction [4][7] - The report anticipates that Tencent's gaming, advertising, and cloud businesses will benefit from AI technology advancements, positioning WeChat as a potential "AI operating system" [7]