22 August 2025 | 11:39PM HKT Tencent Holdings (0700.HK): Europe NDR highlights: AI empowering long runways of growth across business lines; Buy We hosted Tencent's Chief Strategy Officer Mr. James Mitchell and the investor relations team with investors in Europe over Aug 18-22. Key investor focus areas/topics included: 1) Efficient scaling of AI capex and inference efficiency, where the company highlights lower capex intensity vs. global peers with cost efficiency across racks/land/data center alongside low ...

机构：华安证券 金融科技：AI 相关服务需求拉动云服务收入增长 腾讯Q2 营收1845.0 亿元（yoy+14.5%，qoq+2.5%），高于一致预期1789 亿（beat 3.1%）；实现毛利 1050.1 亿元（yoy+22.3%，qoq+4.5%），高于一致预期988 亿（beat 6.3%）；实现经调整净利润630.5 亿元（yoy+10.0%，qoq+2.8%），超一致预期的620 亿（beat1.7%）。毛利方面，VAS 业务毛利率同比 提升3pct 至60%，主要由于二季度《三角洲行动》等自研游戏的增长所致；营销业务毛利率同比提升 2pct 至58%，主要受视频号及搜一搜收入增长所驱动；金融科技业务毛利率同比增加4pct 至52%，主要 得益于消费贷款服务及理财服务的收入增长和支付服务及云成本效益增长。 增值服务：本土游戏稳健运营，海外游戏表现亮眼 25Q2，国内游戏部分收入404 亿元（yoy+17%），高于预期的400 亿元，《三角洲行动》7 月MAU 破 2000 万，持续提供流水贡献，同时长线运营游戏《王者荣耀》《和平精英》《无畏契约》稳健运营； 国际游戏收入表现亮眼达188 亿元（yo ...

Core Viewpoint - Tencent Holdings demonstrated robust growth in Q2 2025, with double-digit year-on-year increases in revenue and profit across key metrics, driven by strong performance in gaming, marketing services, fintech, and enterprise services [1][2]. Group 1: Financial Performance - Revenue reached 184.5 billion yuan, a 15% year-on-year increase, with gross margin improving from 53% to 57% due to higher contributions from high-margin businesses and cost efficiency [1]. - Non-IFRS operating profit rose to 69.25 billion yuan, up 18% year-on-year, with core profit growth reaching 20% after excluding joint venture impacts [1]. - Non-IFRS net profit attributable to shareholders increased by 10% to 63.05 billion yuan, exceeding market expectations [1]. Group 2: Business Segments - The value-added services segment generated 91.37 billion yuan, a 16% year-on-year increase, accounting for 50% of total revenue, with domestic game revenue at 40.4 billion yuan, up 17% [1]. - International game revenue grew by 35% year-on-year, driven by strong performance from titles like "Clash Royale" and "PUBG MOBILE" [1]. - Marketing services revenue reached 35.76 billion yuan, a 20% year-on-year increase, benefiting from AI-driven advertising efficiency improvements [2]. Group 3: User Engagement and AI Integration - Monthly active users for WeChat and WeChat combined reached 1.411 billion, a 3% year-on-year increase, while QQ mobile MAUs were 532 million, showing high user engagement [3]. - The company invested 19.107 billion yuan in capital expenditures, primarily focused on AI-related business development [3]. - AI technology is deeply integrated across various business lines, enhancing user experience and driving growth in gaming, advertising, and enterprise services [3]. Group 4: Investment Outlook - The strong performance in Q2 2025 reflects the deep empowerment of AI technology across business lines, with expectations for continued growth driven by new game launches and consumption recovery [3]. - The company is projected to have a target price of 699.1 HKD, with estimated PE ratios of 23.6x and 20.7x for 2025 and 2026, respectively, indicating a potential upside of 19.3% from recent closing prices [3].

Investment Rating - The report maintains a "Buy" rating for Tencent Holdings, with a target price increase to HK$701 from HK$658 [1][9][31]. Core Insights - Tencent's strong second-quarter results demonstrate the fastest top-line growth in four years, supported by record gross margins, positioning the company favorably within the Chinese internet sector to leverage AI applications across its business lines [2][20]. - Revenue and EPS estimates for FY25E-27E have been revised upward by 1-6% due to the stability of the games business, growth in marketing services, recovering fintech, and cloud/eCommerce acceleration [2][31]. - The report highlights the significant role of AI in driving growth across various segments, including games, advertising, fintech, and cloud services, with increased capital expenditures projected for FY25E and FY26E [2][20][27]. Summary by Sections Financial Performance - Tencent's total revenue for FY25E is estimated at Rmb746.72 billion, with a growth rate of 13.1% year-on-year, and for FY26E, it is projected at Rmb820.27 billion, reflecting a 9.9% growth [4][31]. - The company expects an EBITDA of Rmb343.45 billion for FY25E, with an EBITDA margin of 46% [4][12]. - EPS is forecasted to be Rmb27.69 for FY25E, showing a growth of 17% [4][31]. Business Segments - The gaming segment is projected to grow by 18% and 11% year-on-year for FY25E and FY26E, respectively, driven by strong titles and a robust pipeline [21][22]. - Marketing services revenue is expected to grow by 19% and 16% for FY25E and FY26E, supported by AI-driven adtech improvements and increased engagement on WeChat [25][26]. - Fintech and business services are anticipated to see revenue growth of 9% and 8% for FY25E and FY26E, respectively, aided by a recovery in transaction volumes and cloud service expansion [26][27]. AI and Technology Integration - AI investments are central to Tencent's growth strategy, with significant capital expenditures planned to enhance AI capabilities across its platforms [20][27]. - The report notes improvements in advertising effectiveness due to AI upgrades, leading to higher click-through rates and revenue per click [25][26]. - Tencent's ongoing development of AI functionalities within WeChat aims to enhance user experience and transaction capabilities [20][28]. Market Position and Outlook - Tencent is positioned as a key beneficiary of AI applications, with expectations of compounding earnings growth through macroeconomic cycles [28]. - The company is recognized as a top player in the public cloud sector in China, further solidifying its market position [28].

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **mobile messaging apps** industry in **Asia**, particularly platforms like **KakaoTalk**, **WeChat**, and **LINE**. These platforms are expected to be the first mainstream services to integrate **AI agents** to enhance user experience and drive new business models [1][2][10]. Core Insights and Arguments - **AI Integration Potential**: Mobile messaging apps are seen as ideal for showcasing AI agents, which can significantly improve user experience and increase traffic. The integration of AI agents could transform these apps into "superapps" capable of handling various tasks such as shopping and reservations [1][3][10]. - **User Engagement**: The platforms have a vast user base, with **KakaoTalk** having 49.1 million monthly active users (95% of the population in Korea), **WeChat** with 1.1 billion (80% in China), and **LINE** with 98 million (80% in Japan). This extensive reach provides ample data for AI agents to learn and improve [18]. - **Revenue Opportunities**: The successful integration of AI agents is expected to create new revenue streams through increased user engagement, higher transaction volumes, and the potential for third-party app integrations [19][20][21]. - **Stock Implications**: - For **Kakao**, the launch of AI agents is viewed as a catalyst for innovation, with a price target raised to **W75,000**. - For **Tencent**, success with AI agents is anticipated to solidify its position in China, with a price target of **HK$700**. - **LY Corp** is also seen as having significant upside potential due to minimal investor expectations regarding LINE's AI capabilities, with a price target of **¥600** [5][8][71][78]. Risks and Challenges - **Execution Risks**: There are concerns that AI agents may not significantly enhance user experience, and competition from large vertical players like **ByteDance** and **Naver** could disrupt the messaging platforms [4][30][31]. - **Market Disruption**: Global AI platforms such as **OpenAI**, **Google**, and **Meta** could potentially disrupt the messaging apps by offering their own AI solutions [4][33]. - **User Experience Concerns**: The effectiveness of AI agents is contingent on their ability to deliver a seamless user experience. Any shortcomings could lead to user dissatisfaction and financial losses [27][28]. Additional Insights - **Kakao's AI Strategy**: Kakao is set to release updates with AI agents by November 2025, leveraging partnerships with OpenAI to enhance its services [36][37]. - **WeChat's Ecosystem**: WeChat is integrating AI across its ecosystem, enhancing functionalities and user engagement, which is expected to drive ad growth and transaction opportunities [72][75]. - **LINE's AI Developments**: LINE is focusing on creating personal assistants and has rolled out multiple AI applications, aiming for significant revenue growth [50][55]. Financial Projections - **Kakao's Revenue Estimates**: Following a strong earnings report, revenue estimates for Kakao have been increased by 1% to 5% for 2025-2027, reflecting anticipated growth from AI integration [82]. - **Valuation Scenarios**: The price target for Kakao is based on a probability-weighted scenario analysis, reflecting a more constructive outlook for AI agents [84][93]. This summary encapsulates the key points discussed in the conference call, highlighting the potential of AI integration in mobile messaging apps, the associated risks, and the financial implications for the companies involved.

Tencent Holdings Q2 2025 Earnings Call Summary Company Overview - **Company**: Tencent Holdings - **Date**: Q2 2025 Earnings Call Key Financial Metrics - Total revenue increased by 15% year-on-year to **184 billion RMB** [2][3] - Gross profit rose by 22% to **105 billion RMB** [2][3] - Non-IFRS operating profit surged by 80% to **69 billion RMB** [2][3] - Non-IFRS net profit attributable to shareholders grew by 10% to **63 billion RMB** [2][3] - Basic net profit, excluding contributions from associates, increased by 20% [3] Gaming Business Highlights - Domestic gaming revenue grew by 17%, driven by long-standing games like **Dota 2** and **Honor of Kings** [2][5] - International gaming revenue increased by 35% (33% at constant currency), supported by titles from **Supercell**, **PUBG Mobile**, and **Awakening of the Song** [2][5] - **Valorant** achieved record average daily active users in China, with **Valorant Mobile** set to launch soon [5] Social Network and Digital Content Developments - Combined monthly active users of **WeChat** reached **1.4 billion** [2][6] - Mini-programs became a crucial platform connecting users with businesses, with mini-game revenue up by 20% [2][6] - Music streaming service **PNE** solidified its leadership, with subscription revenue up by 17% and total subscribers reaching **124 million** [6] Financial Technology and Commercial Services - Financial technology and commercial services revenue rose by 10% to **56 billion RMB** [4][12] - Growth in financial technology services driven by commercial payment and consumer loan services [4][12] - Cloud services revenue accelerated due to increased demand for AI-related GPU and API token services [4][12] Advertising Revenue Growth - Advertising revenue increased by 20%, attributed to improved click-through rates from AI technology deployment [4][11] - AI-driven advertising strategies enhanced return on investment for advertisers [4][11] AI Technology Integration - AI technology upgraded advertising capabilities, improving click rates and conversion rates [2][7] - Large language model features added to mini-programs for smarter customer responses and personalized recommendations [2][7] - AI tools applied in gaming to enhance content creation speed and scale [7] Business Segment Performance - Value-added services (VAST) accounted for 50% of total revenue, with social networks at 18%, domestic games at 22%, and international games at 10% [8] - Marketing services contributed 19% and financial technology and commercial services 30% to total revenue [8] Future Outlook - Continued exploration of AI commercialization opportunities, despite challenges in user payment models in China [4][17] - Anticipated sustained growth in advertising revenue, with AI expected to enhance targeting and conversion rates [11][20] - Ongoing investment in AI and cloud services to meet increasing external enterprise demand [20] Additional Insights - The gaming business is evolving towards a platform model, reducing revenue volatility [21] - Government anti-inflation measures may reduce competition but could accelerate industry consolidation, requiring strategic adjustments [22] - Commercial payment trends show improvement, with transaction volumes growing despite declining average transaction sizes [23] Conclusion Tencent Holdings demonstrated robust growth across various segments in Q2 2025, leveraging AI technology to enhance advertising and gaming experiences while maintaining a strong financial performance. The company is well-positioned for future growth, particularly in the realms of AI and cloud services.

Core Insights - Tencent Holdings reported a strong second-quarter performance with revenue of 184.5 billion RMB, a 15% year-on-year increase, and a net profit of 55.63 billion RMB, up 17% year-on-year [1][3][4] - The company's daily revenue reached approximately 20.27 million RMB, translating to a daily net profit of about 6.11 million RMB [1][3] Financial Performance - Total revenue for Q2 was 184.5 billion RMB, with a gross profit of 105.01 billion RMB, reflecting a 22% increase year-on-year [3] - Operating profit stood at 60.10 billion RMB, an 18% increase compared to the previous year, while net profit attributable to equity holders was 55.63 billion RMB, up 17% [3][4] - Earnings per share (EPS) increased by 20% to 6.115 RMB compared to the same period last year [3] Business Segments - Value-added services revenue reached 91.4 billion RMB, a 16% increase year-on-year, driven by strong performance in both domestic and international gaming markets [3][4] - Marketing services revenue grew by 20% to 35.8 billion RMB, while financial technology and enterprise services revenue increased by 10% to 55.5 billion RMB [3][4] User Engagement - The combined monthly active accounts for WeChat and Weixin reached 1.411 billion, a 0.6% quarter-on-quarter increase and a 3% year-on-year increase [4] - QQ's monthly active accounts decreased by 0.4% quarter-on-quarter and 7% year-on-year to 532 million [4] Capital Expenditure and Cash Flow - Tencent generated free cash flow of 43 billion RMB in Q2, with net cash flow from operating activities at 74.4 billion RMB [4] - Capital expenditures amounted to 22.9 billion RMB, primarily supporting AI-related business development [4] Employee and Compensation - As of the end of Q2, Tencent employed 111,221 staff, with total compensation costs for the first half of the year reaching 65 billion RMB [4] - The average employee compensation cost for the first half of the year was approximately 584,400 RMB [4] Stock Performance - Tencent's stock price has seen significant growth, reaching a peak of 586 HKD per share on August 13, marking a 42.06% increase year-to-date and a total market capitalization of 5.36 trillion HKD [6]

Core Viewpoint - Tencent Holdings reported a strong Q2 performance with a 15% year-on-year revenue growth to RMB 184.5 billion, exceeding market expectations of RMB 178.94 billion, and a net profit increase of 17% to RMB 55.63 billion [1][2]. Financial Performance - Revenue for Q2 reached RMB 184.5 billion, up 15% from RMB 161.12 billion in the same period last year, and a slight increase of 2% from RMB 180.02 billion in Q1 [2]. - Gross profit rose to RMB 105.01 billion, reflecting a 22% increase year-on-year and a 4% increase quarter-on-quarter [2]. - Operating profit was RMB 60.10 billion, an 18% increase year-on-year and a 4% increase from the previous quarter [2]. - Net profit attributable to equity holders was RMB 55.63 billion, up 17% year-on-year and 16% quarter-on-quarter [2]. - Earnings per share (EPS) increased by 20% year-on-year to RMB 6.115 [2]. Investment and Employment - R&D expenditure for the quarter was RMB 20.25 billion, a 17% increase year-on-year, while capital expenditure surged to RMB 19.1 billion, a 119% increase compared to RMB 8.7 billion last year [1]. - As of June 30, 2025, Tencent employed 111,221 staff, with total compensation costs for the first half of the year amounting to RMB 65 billion [1]. Gaming Revenue - Domestic gaming revenue reached RMB 40.4 billion, a 17% year-on-year increase, driven by new releases and growth in established titles [2]. - International gaming revenue soared by 35% to RMB 18.8 billion, with significant contributions from Supercell's titles and strong performance from PUBG MOBILE [2]. User Engagement - The combined monthly active accounts for WeChat and Weixin reached 1.411 billion, a 0.6% increase quarter-on-quarter and a 3% increase year-on-year [3]. - QQ's smart terminal monthly active accounts were 532 million, showing a slight decline of 0.4% quarter-on-quarter and a 7% decrease year-on-year [3]. Stock Performance - Tencent's stock price reached a high of HKD 586 per share, marking a 41.75% increase year-to-date, although it remains 15% below its historical peak [3].

Core Viewpoint - Tencent Holdings has shown strong performance in the Hong Kong stock market, with its stock price reaching a new high since June 2021, driven by robust financial results in Q2 [1][2]. Financial Performance - In Q2, Tencent reported revenue of 184.5 billion yuan, a year-on-year increase of 15%, and a net profit of 55.63 billion yuan, up 17% [1]. - The company's capital operations were proactive, with a total repurchase of approximately 36.5 billion HKD for 81.87 million shares, which were subsequently canceled, reflecting confidence in future growth [1]. Gaming Business - The gaming segment is a key driver of Tencent's revenue growth, with domestic game revenue reaching 40.4 billion yuan, a 17% year-on-year increase, largely attributed to the successful launch of the game "Delta Operation" [1][2]. - Classic games like "Honor of Kings," "Valorant," and "Peacekeeper Elite" continue to show stable revenue growth, providing a solid foundation for Tencent's gaming business [1][2]. User Engagement - The user base of Tencent's social platforms is expanding, with WeChat and WeChat combined monthly active accounts reaching 1.411 billion, a 0.6% quarter-on-quarter increase and a 3% year-on-year increase [1]. - QQ's smart terminal monthly active accounts were 532 million, showing a slight decline of 0.4% quarter-on-quarter and a 7% year-on-year decrease [1]. Market Outlook - The market maintains an optimistic outlook on Tencent's future development, supported by the company's continuous innovation capabilities in gaming and social sectors, laying a solid foundation for long-term growth [2]. - Investor response to Tencent's performance has been positive, contributing to the stock price reaching new highs [1][2].

Core Viewpoint - Tencent Holdings reported strong financial performance for the second quarter of 2025, with significant year-on-year growth in revenue and profit, driven by its gaming and AI initiatives [1][3]. Financial Performance - Revenue for the second quarter reached RMB 184.504 billion, a 15% increase year-on-year [2]. - Net profit attributable to equity holders was RMB 55.628 billion, reflecting a 17% year-on-year growth [2]. - Gross profit was RMB 105.013 billion, up 22% compared to the previous year [2]. - Operating profit increased by 18% year-on-year to RMB 60.104 billion [2]. - Earnings per share rose to RMB 6.115, a 20% increase from the same period last year [2]. Investment and R&D - The company invested RMB 202.5 billion in research and development, marking a 17% increase year-on-year [1]. - Capital expenditures reached RMB 191.1 billion, with a significant year-on-year growth of 119% [1]. Gaming Sector - Domestic gaming revenue for the quarter was RMB 404 billion, a 17% increase year-on-year, driven by new releases and established titles [3]. - The success of games like "Delta Action" and ongoing popularity of titles such as "Honor of Kings" and "Peacekeeper Elite" contributed to this growth [3]. AI and Advertising - Continued investment in AI has led to double-digit percentage growth in both revenue and non-IFRS operating profit [3]. - The company upgraded its advertising models, enhancing ad effectiveness across platforms and driving rapid growth in marketing services revenue [3]. User Engagement - The combined monthly active accounts for WeChat and WeChat reached 1.411 billion, a 0.6% increase quarter-on-quarter and a 3% increase year-on-year [3]. - QQ's monthly active accounts were 532 million, showing a slight decline of 0.4% quarter-on-quarter and a 7% decrease year-on-year [3]. Employment and Compensation - As of June 30, 2025, the company employed 111,221 staff, with total compensation costs for the first half of the year amounting to RMB 650 billion [3]. - The number of employees increased from 109,414 in the previous quarter, with total compensation costs of RMB 341 billion [3]. Market Reaction - Following the earnings report, Tencent's stock price rose by 4.74%, increasing its market capitalization by approximately RMB 221.743 billion [4].