Investment Rating - The investment rating for Tencent Holdings is maintained as "Buy" [8] Core Views - Tencent is expected to achieve operating revenue of 178.3 billion RMB in Q2 2025, representing a year-on-year growth of 11%, and an adjusted net profit of 60.2 billion RMB, reflecting a 5% increase [2] - The company continues to show healthy growth driven by new game releases and advancements in AI technology [8] - The report highlights the strong performance in gaming, advertising, and financial technology sectors, with specific growth rates projected for each segment [8] Financial Data and Profit Forecast - Revenue projections for Tencent are as follows: - 2023: 609 billion RMB - 2024: 660.3 billion RMB - 2025E: 731.1 billion RMB - 2026E: 795.5 billion RMB - 2027E: 846.5 billion RMB - Year-on-year growth rates for revenue are projected at 9.8% for 2023, 8.4% for 2024, 10.7% for 2025, 8.8% for 2026, and 6.4% for 2027 [4] - Adjusted net profit forecasts are: - 2023: 157.7 billion RMB - 2024: 222.7 billion RMB - 2025E: 250.7 billion RMB - 2026E: 281.3 billion RMB - 2027E: 309.3 billion RMB - Year-on-year growth rates for adjusted net profit are projected at 36.4% for 2023, 41.2% for 2024, 12.6% for 2025, 12.2% for 2026, and 10.0% for 2027 [4] Revenue Breakdown - The expected revenue breakdown for Q2 2025 includes: - Online gaming revenue growth of 14% year-on-year - Advertising revenue growth of 17% year-on-year - Financial technology and enterprise services revenue growth of 5% year-on-year [8] - The report emphasizes the contribution of new game titles and AI enhancements to revenue growth [8] Valuation - The target price for Tencent is set at 673 HKD, indicating an upside potential of 35.5% from the current price [8] - The SOTP (Sum of the Parts) valuation method estimates the total market value of Tencent at approximately 561.73 billion RMB [10]

Core Insights - The Chinese gaming industry has experienced significant growth over the past decade, with annual revenue increasing from 140.7 billion to 325.7 billion yuan, marking a doubling in revenue since 2015 [1] - The focus on overseas expansion and long-term operational strategies is becoming crucial for Chinese gaming companies as they navigate a more competitive global market [2] Industry Trends - The Ministry of Commerce's recent work plan emphasizes the development of overseas gaming businesses, aiming to enhance the entire industry chain from IP creation to overseas operations [2] - Chinese gaming companies have transitioned from initial overseas attempts to now consistently ranking among the top global revenue earners, with Tencent, NetEase, and miHoYo leading the way [3] - The market has shifted from rapid growth in blue ocean markets to a more refined competition in saturated markets, necessitating a focus on extending product lifecycles and maximizing commercial value [2][3] Localization and Market Adaptation - Early challenges in overseas expansion included high localization costs and the complexity of adapting to diverse player preferences in different markets [4] - Successful companies have developed their own methodologies for overseas expansion, leveraging data analysis to understand user behavior and optimize game development and operations [5] Strategic Adjustments - As major markets become saturated, companies must refine their operational strategies to enhance resource efficiency and competitiveness [6][7] - The importance of community engagement and user feedback in shaping game updates and operational strategies has increased, contributing to long-term user retention [7] Technological Empowerment - The integration of emerging technologies, particularly AI, is becoming essential for improving efficiency in game development and marketing [9][10] - AI tools are being utilized to enhance the production of promotional materials and to analyze player data, which helps in tailoring user experiences and optimizing monetization strategies [9][10] Future Outlook - The gaming industry is expected to continue evolving, with a focus on global expansion and the integration of technology driving innovation and operational improvements [11]

Core Viewpoint - Tencent's Q1 2025 financial results exceeded expectations, with significant growth in gaming and advertising revenues, and a strong performance in financial technology and enterprise services [1][2][3] Group 1: Financial Performance - Tencent achieved operating revenue of 180 billion yuan in Q1 2025, a year-on-year increase of 13%, surpassing Bloomberg's consensus estimate by 3% [1] - Adjusted net profit attributable to shareholders reached 61.3 billion yuan, reflecting a 22% year-on-year growth, also exceeding Bloomberg's expectations by 3% [1] - The company has repurchased 21 billion HKD worth of shares as of May 14, 2025, with a commitment to repurchase no less than 80 billion HKD for the year [1] Group 2: Gaming Sector - Q1 2025 saw record highs in both domestic and international gaming revenues, with a 17% year-on-year increase in value-added services revenue [1] - Domestic game revenue reached over 40 billion yuan for the first time in a single quarter, with notable performances from long-standing titles such as "Honor of Kings" and "Crossfire Mobile" [1] - New game releases, including "Delta Force" and "Operation Delta," contributed to growth, with "Operation Delta" achieving over 12 million daily active users in April [1] Group 3: Advertising Revenue - Advertising revenue grew by 20% year-on-year in Q1 2025, with video accounts and search services driving this growth [2] - The advertising platform's AI capabilities, including image generation and digital human live streaming, are beginning to show positive effects [2] - Video account advertising revenue has seen over 60% year-on-year growth for three consecutive quarters, indicating strong performance [2] Group 4: Financial Technology and Enterprise Services - Financial technology and enterprise services revenue grew by 5% year-on-year, meeting expectations, with financial technology showing low single-digit growth [2] - The gross margin for financial technology and enterprise services reached a historical high of 50.3%, driven by improvements in payment and cloud business profitability [2] - AI-related revenue in the cloud business is growing rapidly, contributing to the overall performance of the financial technology and enterprise services segment [2] Group 5: Strategic Investments in AI - Tencent's capital expenditure for Q1 2025 was 27.5 billion yuan, nearly doubling year-on-year, representing 15% of revenue [3] - Research and development expenses increased by 21% year-on-year to 18.9 billion yuan, reflecting ongoing investments in AI [3] - The company continues to enhance AI functionalities within WeChat, aiming for further improvements in user experience and service capabilities [3] Group 6: Future Outlook - The adjusted net profit forecasts for Tencent for 2025-2027 have been raised to 252.8 billion, 283.7 billion, and 311.4 billion yuan respectively [3] - The target price based on the SOTP valuation method is set at 694 HKD, indicating a potential upside of 33% [3]

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings [5] Core Views - Tencent's Q1 2025 revenue reached 180 billion RMB, a year-on-year increase of 13%, exceeding Bloomberg consensus expectations by 3%. Adjusted net profit attributable to shareholders was 61.3 billion RMB, up 22% year-on-year, also surpassing expectations by 3% [2][3] - The gaming sector showed strong performance, with both domestic and international revenues hitting historical highs. Domestic game revenue exceeded 40 billion RMB for the first time in a single quarter, with significant contributions from long-standing titles [7] - Advertising revenue grew by 20% year-on-year, driven by the performance of video accounts and search functionalities, with AI enhancements contributing to the growth [7] - Financial technology and enterprise services revenue grew by 5% year-on-year, with a record high gross margin of 50.3% achieved in Q1 2025 [7] - The company is making substantial investments in AI, with capital expenditures reaching 27.5 billion RMB in Q1 2025, nearly doubling year-on-year [7] Financial Data and Profit Forecast - Revenue projections for Tencent are as follows: - 2023: 609 billion RMB - 2024: 660.3 billion RMB - 2025E: 733.6 billion RMB - 2026E: 790.8 billion RMB - 2027E: 843.3 billion RMB - Adjusted net profit forecasts are: - 2023: 157.7 billion RMB - 2024: 222.7 billion RMB - 2025E: 252.8 billion RMB - 2026E: 283.7 billion RMB - 2027E: 311.4 billion RMB [4][11] - The report projects a target price of 694 HKD, indicating a potential upside of 33% from the current price [7][9]