Investment Rating - The report maintains a "Buy" rating for Tencent Holdings (700 HK) with a target price raised to HKD 604.00, indicating a potential upside of 15.9% from the current price of HKD 521.00 [1][39]. Core Insights - The first quarter performance exceeded expectations, with total revenue growing 13% year-on-year to RMB 180 billion, surpassing market expectations by 4% [2][6]. - The growth was driven by strong performance in domestic games, social networking, and marketing services, with notable contributions from AI investments and cost optimizations in payment and cloud services [6][7]. - The report highlights that the integration of AI across Tencent's business ecosystem is expected to enhance platform traffic and advertising revenue stability [6][7]. Financial Overview - Revenue projections for 2023 to 2027 show a steady increase, with expected revenues of RMB 609 billion in 2023, RMB 660 billion in 2024, and RMB 723 billion in 2025, reflecting a compound annual growth rate (CAGR) of approximately 9.6% [3][42]. - Net profit is projected to grow from RMB 157.7 billion in 2023 to RMB 250.2 billion in 2025, with a significant increase in earnings per share (EPS) from RMB 16.33 to RMB 27.23 over the same period [3][42]. - The report notes an improvement in gross margin, with a projected gross margin of 54.5% for Q2 2025, up from 53.5% in the previous quarter [37]. Segment Performance - Domestic game revenue is expected to continue its rapid growth, with a year-on-year increase of 24% in Q1 2025, supported by a low base from the previous year and the success of new game launches [6][7]. - Social networking revenue grew by 7% year-on-year, driven by increased music subscription services and mobile game in-app purchases [6][7]. - Marketing services revenue saw a significant boost, with video account revenue increasing by over 60% [6][7]. Capital Expenditure and AI Investment - Capital expenditures reached RMB 27.5 billion in Q1 2025, reflecting a 91% year-on-year increase, primarily due to ongoing investments in AI and cloud service infrastructure [6][7]. - The report emphasizes that some of these investments have already started to yield revenue contributions, particularly in advertising optimization and content recommendation algorithms [6][7].

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings (700 HK) with a target price raised to HKD 604.00, indicating a potential upside of 15.9% from the current price of HKD 521.00 [1][39]. Core Insights - The first quarter performance exceeded expectations, with total revenue growing by 13% year-on-year to RMB 180 billion, surpassing market expectations by 4% [2][6]. - The growth was driven by strong performance in domestic games, social networks, and marketing services, with notable increases in revenue from video accounts and search services [6][7]. - The integration of AI into Tencent's business ecosystem is expected to enhance platform traffic and advertising revenue, contributing to sustained growth [6][7]. Financial Overview - Revenue projections for the upcoming years are as follows: RMB 609,015 million in 2023, RMB 660,257 million in 2024, and RMB 723,532 million in 2025, reflecting a compound annual growth rate of approximately 9.6% [3][42]. - Net profit is projected to increase from RMB 157,688 million in 2023 to RMB 250,235 million in 2025, with a significant year-on-year growth rate of 44.1% in 2024 [3][42]. - The earnings per share (EPS) is expected to rise from RMB 16.33 in 2023 to RMB 27.23 in 2025, indicating a robust growth trajectory [3][42]. Segment Performance - Domestic game revenue grew by 24% year-on-year, supported by a low base from the previous year and the success of new game launches [6][7]. - Social network revenue increased by 7%, driven by growth in paid music subscriptions and mobile game in-app purchases [6][7]. - Marketing services revenue saw a 20% increase, primarily due to strong demand for advertising on video accounts and search services [6][7]. Capital Expenditure and AI Investment - Capital expenditures reached RMB 27.5 billion, a 91% increase year-on-year, reflecting ongoing investments in AI and cloud service infrastructure [6][7]. - The report highlights that some of these investments have already started to yield revenue contributions, particularly in advertising optimization and content recommendation algorithms [6][7].