Core Viewpoint - Morgan Stanley raised Tencent's target price by 7.7%, from HKD 650 to HKD 700, maintaining an "Overweight" rating and reaffirming it as a preferred stock [1] Group 1: Business Performance - Tencent's core business is experiencing steady growth, with expectations that AI deployment will continue to drive stable revenue growth and yield high returns on investment (ROI) [1] - Concerns regarding profit margin pressure from AI investments have eased [1] Group 2: Capital Expenditure - Tencent maintained its capital expenditure guidance, reporting RMB 47 billion in capital expenditure for the first half of the year, with Morgan Stanley projecting a total of RMB 97 billion for the year, aligning with expectations [1] - Capital expenditure is expected to accelerate in the second half of the year as sales recover in mainland China [1] Group 3: Revenue and Profit Forecasts - Morgan Stanley anticipates Tencent's Q3 revenue and non-IFRS operating profit to increase by 12% and 14%, respectively; gaming revenue is expected to rise by 16%, while advertising revenue is projected to grow by 20% [1] - Financial technology and enterprise services (FBS) revenue is expected to increase by 9% [1] - Revenue and adjusted operating profit forecasts for the next two years have been raised by 2%, with projected revenues of RMB 743.5 billion and RMB 812.8 billion for this year and next year, respectively, and adjusted operating profits of RMB 275.8 billion and RMB 311.2 billion [1]

Market Performance - US stock indices opened higher, with the Nasdaq and S&P 500 reaching new highs during the session. As of the report, the Dow Jones increased by 0.59%, the S&P 500 by 0.15%, and the Nasdaq Composite by 0.13% [1] - Chinese concept stocks surged, with the Nasdaq China Golden Dragon Index rising over 2% [3] Company Highlights - Individual stocks saw significant gains, with Bilibili rising over 6%, and NetEase, Alibaba, and Li Auto each increasing by over 3%. Tencent Holdings' ADR rose nearly 7%, reaching a market capitalization exceeding $700 billion [4] - Tencent Holdings released its mid-term and Q2 2025 earnings report, showing total revenue of 364.53 billion RMB for the six months ending June 30, 2025. Operating profit was 117.67 billion RMB, with net profit attributable to shareholders at 103.45 billion RMB [6] - For Q2 2025, Tencent reported total revenue of 184.5 billion RMB, a 15% year-on-year increase, with operating profit of 69.2 billion RMB, up 18% year-on-year. The gross margin reached 57%, an increase of 4 percentage points year-on-year [6] - Tencent's three main business segments all experienced revenue growth: Value-added services at 91.4 billion RMB (up 16% YoY), Marketing services at 35.8 billion RMB (up 20% YoY), and Financial technology and enterprise services at 55.5 billion RMB (up 10% YoY) [6] - Tencent emphasized the deep integration of AI into its gaming, advertising, and social ecosystems, with CEO Ma Huateng noting continued investment and benefits from AI in Q2 2025 [6] Economic Context - The FTSE China A50 index saw a rapid increase [6] - US Treasury Secretary Mnuchin expressed hope for the Senate to confirm the current White House economic advisor to fill a temporary vacancy on the Federal Reserve Board before the next meeting in September, which could set the stage for significant interest rate cuts [8] - Mnuchin indicated that the recent downward revisions of employment data and favorable inflation data could lead to discussions of a 50 basis point rate cut in September [9]

Market Performance - US stock indices opened higher, with the Nasdaq and S&P 500 reaching new highs during the session [1] - As of the report, the Dow Jones increased by 0.59%, S&P 500 by 0.15%, and Nasdaq by 0.13% [1] Chinese Stocks - Chinese concept stocks surged, with the Nasdaq China Golden Dragon Index rising over 2% [3] Individual Stock Movements - Bilibili's stock rose over 6%, while NetEase, Alibaba, and Li Auto each increased by over 3% [5] - Tencent Holdings' ADR saw a nearly 7% increase, reaching a market capitalization exceeding $700 billion [5] Tencent's Financial Performance - Tencent reported total revenue of 364.53 billion RMB for the six months ending June 30, 2025, with an operating profit of 117.67 billion RMB and a net profit attributable to shareholders of 103.45 billion RMB [7] - For Q2 2025, Tencent's total revenue was 184.5 billion RMB, reflecting a 15% year-on-year growth, with operating profit increasing by 18% to 69.2 billion RMB [7] - Gross margin reached 57%, up by 4 percentage points year-on-year [7] Tencent's Business Segments - All three main business segments of Tencent reported revenue growth: - Value-added services revenue was 91.4 billion RMB, up 16% year-on-year - Marketing services revenue was 35.8 billion RMB, up 20% year-on-year - Financial technology and enterprise services revenue was 55.5 billion RMB, up 10% year-on-year [8] - Tencent emphasized the deep integration of AI into its gaming, advertising, and social ecosystems, with ongoing investments in AI yielding benefits [8]

在核心业务坚实增长的同时，腾讯持续加码AI战略投入，当季研发投入同比增长17%至202.5亿元，资 本开支同比增长119%至191.1亿元。 央广网北京8月13日消息（记者 黄昂瑾）8月13日，腾讯控股（00700.HK）二季报显示，当季腾讯实现 营收1845亿元，同比增长15%，经营利润（Non-IFRS）692.5亿元同比增长18%。 据了解，AI深度融入腾讯核心业务，显著驱动增长：增值服务收入同比增长16%至913.7亿元，游戏板 块收入同比增长22%，其中国际游戏市场收入同比增长35%至188亿元，连续四季创新高；营销服务在 大模型技术升级和微信生态活跃度提升带动下保持高速增长，收入同比增长20%至357.6亿元；金融科 技及企业服务业务盈利明显改善，收入同比增长10%至555.4亿元。 ...

Core Viewpoint - Tencent Holdings reported strong Q1 2025 results, exceeding expectations with revenue of 1800.22 billion RMB, a 13% year-on-year increase, and net profit of 478.21 billion RMB, up 14% [1] Group 1: Financial Performance - Revenue for Q1 2025 reached 1800.22 billion RMB, with a year-on-year growth of 13% [1] - Net profit was 478.21 billion RMB, reflecting a 14% increase compared to the previous year [1] - Adjusted net profit stood at 613.29 billion RMB, marking a 22% year-on-year growth [1] - Earnings per share were 5.252 RMB, up 17% year-on-year, while non-IFRS earnings per share increased by 25% to 6.735 RMB [1] Group 2: Business Segments - Value-added services revenue grew by 17% to 921 billion RMB, driven by domestic game revenue of 429 billion RMB, which increased by 24% year-on-year [2] - International game revenue reached 166 billion RMB, a 23% increase year-on-year, attributed to popular titles [2] - Social network revenue rose by 7% to 326 billion RMB, supported by mobile game virtual goods sales and music subscription services [2] - Marketing services revenue increased by 20% to 319 billion RMB, fueled by strong demand for advertising on various platforms [2] - Financial technology and enterprise services revenue grew by 5% to 549 billion RMB, with growth in consumer loans and cloud services [2] Group 3: AI Strategy and Future Outlook - Tencent's management highlighted the positive impact of AI on advertising precision, user engagement, and cloud revenue [3] - Increased investment in AI is expected to enhance advertising effectiveness and user interaction [3] - The company aims to expand user retention and engagement through AI-driven features in its services [3] - Goldman Sachs projects Tencent's revenue to grow by 10% and earnings per share by 14% in 2025, supported by its unique ecosystem and diversified revenue streams [4]

Group 1 - Tencent Holdings reported revenue of approximately 1800.22 billion RMB for the three months ending March 31, 2025, representing a year-on-year growth of 13% [1] - The company's profit attributable to equity holders was 478.21 billion RMB, a year-on-year increase of 14%, while non-IFRS profit attributable to equity holders was 613.39 billion RMB, up 22% year-on-year [1] - The gross profit for the group was 1004.93 billion RMB, reflecting a 20% year-on-year growth, driven by high-margin revenue sources and improved cost efficiency in payment and cloud services [1] Group 2 - The revenue from value-added services was 921 billion RMB, showing a year-on-year growth of 17%, with domestic game revenue increasing by 24% to 429 billion RMB [1] - International game revenue reached 166 billion RMB, marking a 23% year-on-year increase (22% growth at constant exchange rates) [1] - Social network revenue grew by 7% to 326 billion RMB, supported by sales of mobile game virtual items, music subscription revenue, and mini-game platform service fees [1] Group 3 - Marketing services revenue was 319 billion RMB, up 20% year-on-year, driven by strong demand from advertisers for video accounts, mini-programs, and WeChat search ads [2] - The growth in marketing services was attributed to increased user engagement, ongoing AI upgrades of the advertising platform, and optimization of the WeChat transaction ecosystem [2] - Financial technology and enterprise services revenue reached 549 billion RMB, reflecting a 5% year-on-year growth, with increases in consumer loan services and wealth management services [2]

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings [1] Core Views - The company's revenue and profit exceeded expectations, driven by AI empowerment [1][2] - The overall revenue for Q4 2024 reached 172.4 billion RMB, a year-on-year increase of 9.71%, surpassing Bloomberg's consensus estimate of 168.7 billion RMB [14] - Non-IFRS net profit for Q4 2024 was 55.31 billion RMB, up 29.6% year-on-year, also exceeding the consensus estimate of 53.3 billion RMB [14] Revenue and Profit Performance - The report highlights that the gaming business revenue exceeded expectations, with Q4 2024 network game revenue at 49.3 billion RMB, a 20.1% year-on-year increase [18] - Social network revenue for Q4 2024 was 29.8 billion RMB, reflecting a 5.7% year-on-year increase [21] - Advertising revenue reached 35 billion RMB, up 17.5% year-on-year, indicating strong growth potential [23] - Financial technology and enterprise services revenue was 56.1 billion RMB, a 3.2% year-on-year increase [25] Margin and Cost Analysis - The overall gross margin for Q4 2024 was 52.57%, an increase of 2.59 percentage points year-on-year [30] - The gross margin for the advertising business was 57.70%, reflecting a year-on-year increase of 0.90 percentage points [30] - Sales expenses decreased by 6.3% year-on-year, while management expenses increased by 15.6% year-on-year [31] Earnings Forecast and Valuation - The report adjusts the net profit forecast for 2025-2026, increasing it to 244.1 billion RMB and 269.3 billion RMB respectively [36] - The expected PE (Non-IFRS) for 2025-2027 is projected to be 18, 16, and 15 times [36]