Summary of Tencent Holdings (700 HK) Conference Call Company Overview - **Company**: Tencent Holdings - **Industry**: Internet Software & Services - **Market Cap**: Approximately USD 683.3 billion Key Points and Arguments Financial Performance - **2Q25 Revenue**: Reported at RMB 184.5 billion, beating consensus expectations by 3% [16] - **Growth Rate**: Year-over-year revenue growth of 15% [16] - **Operating Profit**: Non-IFRS operating profit of RMB 69.2 billion, also beating expectations by 4% [16] - **Net Profit**: Non-IFRS net income of RMB 63.1 billion, exceeding consensus by 3% [16] Segment Performance 1. **Domestic Games (DG)**: - Revenue grew by 17% year-over-year, driven by titles like Delta Force and Honor of Kings [17] - Delta Force's daily active users (DAU) exceeded 20 million in July 2025 [17] 2. **International Games (IG)**: - Revenue surged by 35% year-over-year, driven by Supercell's titles and PUBG Mobile [18] - Clash Royale's gross billings reached a seven-year high in June 2025 [18] 3. **Marketing Services**: - Revenue increased by 20% year-over-year, supported by AI-driven improvements [21] - Video Account, Mini Programs, and Weixin Search ads grew by 50%, 50%, and 60% year-over-year, respectively [21] 4. **Fintech and Business Services (FBS)**: - Revenue grew by 10% year-over-year, driven by consumer loans and commercial payments [22] - Total commercial payment volume resumed year-over-year growth in 2Q25 [22] Growth Projections - **Revenue Estimates**: Increased for 2025-2027, with domestic games up by 2-7%, international games by 3-5%, and ad revenue by 2-6% [1] - **Target Price**: Raised to HKD 690 from HKD 650, implying an upside of approximately 18% [1][4] Operational Efficiency - **Gross Profit Margin (GPM)**: Total GPM improved to 57%, beating expectations by 2 percentage points [16] - **Cost Management**: General and administrative expenses as a percentage of revenue remained flat at 6.3% [25] Shareholder Returns - **Share Buybacks**: Tencent has repurchased HKD 40 billion worth of shares year-to-date, with a commitment of at least HKD 80 billion for 2025 [49][47] - **Dividends**: Planned dividend payments of HKD 41 billion in 2025 [52] Risks and Challenges - **Regulatory Risks**: Potential challenges in obtaining monetization approvals for games and regulatory headwinds in the internet sector [52] - **Market Conditions**: A deeper macroeconomic slowdown could impact advertising budgets [52] Additional Insights - **AI Investments**: Continued benefits from AI investments are expected to drive sustainable growth in advertising and operational efficiency [8] - **Emerging Titles**: Delta Force is on track to become an evergreen title, with the upcoming launch of Valorant Mobile in China being closely watched [8] Conclusion Tencent Holdings demonstrated strong financial performance in 2Q25, with significant growth across its core segments. The company is well-positioned for future growth, supported by strategic investments in AI and a robust pipeline of game titles. However, it faces potential regulatory challenges and macroeconomic risks that could impact its performance. The raised target price reflects confidence in the company's growth trajectory and operational efficiency.

Investment Rating - The report maintains a positive outlook on the eCommerce sector, with a recommendation for a dual-pronged stock picking approach focusing on domestic policy beneficiaries and defensive games [2][12]. Core Insights - April online retail growth was healthy at +6% year-over-year (yoy), consistent with the first quarter of 2025, despite softer overall retail sales [2][8]. - Anticipation of strong online retail growth in May due to the front-loading of the 618 shopping festival sales, which began mid-May [2][9]. - Positive outlook for the second quarter from eCommerce platforms like Alibaba and JD, with estimated revenue growth of +10% yoy for Alibaba and +14% yoy for JD in June [2][12]. - Resumption of direct air-shipment SKUs on the Temu US platform following the reduction of US trade tariffs on China [2][11]. Summary by Sections Online Retail Performance - April online retail goods GMV grew by +6% yoy, driven by strong performance in the consumption trade-in category [8][33]. - Overall retail sales growth was +5.1% yoy in April, below expectations, with notable growth in appliances at +39% yoy and communication devices at +20% yoy [8][32]. 618 Shopping Festival Insights - Key observations from the 618 shopping festival include extended sales periods, simplified discount structures, and collaboration with content platforms [9][12]. - Major platforms initiated sales earlier than the previous year, indicating a strategic shift to enhance consumer engagement [9]. eCommerce Platform Performance - Both Alibaba and JD reported strong first-quarter results, with Alibaba's CMR and Taobao-Tmall Group EBITA growth exceeding expectations [12][36]. - JD's management lifted its full-year growth targets, indicating confidence in its operational leverage and food delivery initiatives [12][36]. Mobile App Engagement - Total time spent on China's top mobile apps grew by +6% yoy in April, with eCommerce and gaming categories showing positive trends [2][13]. - JD's engagement growth was particularly strong, attributed to its aggressive food delivery initiatives [13][14]. Cross-Border eCommerce Trends - Temu has gradually resumed its full-entrusted direct air shipment model for select SKUs on its US site, following tariff reductions [11][12]. - The report anticipates further shifts in Temu's business model towards local warehouses for US and European markets [11][12].

Investment Rating - The report maintains a "Buy" rating on Tencent Holdings with a 12-month sum-of-the-parts (SOTP) based target price of HK$590, indicating an upside of 13.2% from the current price of HK$521 [12][24]. Core Insights - Tencent reported a solid performance in 1Q25, with total revenues increasing by 13% year-over-year (yoy) to Rmb180.022 billion, surpassing the consensus estimate of Rmb175.629 billion [13][21]. - The company's earnings per share (EPS) grew by 25% yoy, reaching Rmb6.58, which also exceeded the expected growth of 20% [13][21]. - Key growth drivers included a 24% yoy increase in gaming revenues and a 20% yoy rise in advertising revenues, both outperforming expectations [11][15]. - Gross margin expanded to 55.8%, the highest level since 2Q16, driven by a favorable mix shift towards higher-margin businesses [11][17]. Summary by Sections Revenue Performance - Total revenues for 1Q25 were Rmb180.022 billion, reflecting a 13% increase yoy, with gaming revenues at Rmb59.5 billion (+24% yoy) and advertising revenues at Rmb31.853 billion (+20% yoy) [13][15]. - FinTech and Business Services (FBS) revenue grew by 5% yoy to Rmb54.907 billion, aligning with expectations [17]. Profitability Metrics - Adjusted operating profit increased by 18% yoy to Rmb69.320 billion, exceeding the consensus estimate [13][17]. - Gross profit reached Rmb100.493 billion, with a gross margin of 55.8%, up 3.2 percentage points yoy [17][19]. Capital Expenditure and Cash Flow - Capital expenditure was Rmb27 billion in 1Q25, down from Rmb37 billion in 4Q24, contributing to a free cash flow of Rmb47.1 billion [11][22]. - The company continued its share repurchase program, executing HK$17.1 billion in buybacks during the quarter [11]. Strategic Focus Areas - The report highlights the sustainability of gaming revenue growth, particularly with the performance of evergreen titles and the potential contribution from VALORANT Mobile [2]. - Progress in AI applications and capital expenditure on AI technologies is also a focal point, with recent upgrades enhancing Weixin's capabilities [3][8]. - The implications of AI-driven advertising technology upgrades and revamped eCommerce strategies are expected to bolster marketing services growth [8][9]. Market Positioning - Tencent's unique WeChat ecosystem and global gaming assets are viewed as key strengths that will enable the company to deliver compounding earnings through macro cycles [11]. - The company is positioned as a significant beneficiary of AI applications, particularly with its WeChat super-app and Tencent Cloud's standing as a top player in China's public cloud market [11].