20260319-招银国际-腾讯控股-00700.HK-Inline_4Q25_results_increasing_AI_investment_to_solidify_competitive_moat_8页_693kb

Tencent (700 HK) Summary

Core Content

Tencent reported in-line 4Q25 results, with total revenue up by 13% YoY to RMB194.4bn and non-IFRS operating income up by 17% YoY to RMB69.5bn, both matching Bloomberg's consensus estimates. FY25 total revenue and non-IFRS operating income increased by 14% and 18% YoY, respectively. FY26 is expected to be a pivotal year for Tencent's AI investment, with management projecting more than double the investment in new AI products compared to FY25 (over RMB36bn, about 4% of FY26 total revenue). While this investment may slow short-term earnings growth, it is anticipated to bolster Tencent's competitive edge and open new revenue streams, such as agentic AI and productivity tools.

Main Points

• Revenue Growth:

  • FY25 total revenue reached RMB751,766 million, with FY26E expected at RMB823,452 million and FY27E at RMB883,100 million.
  • Revenue is forecasted to grow at 10%, 7%, and 5% in FY26-28E, respectively.
  • 4Q25 revenue growth was 12.7% YoY, with a slight QoQ decline of 0.8%.

• Profitability:

  • Non-IFRS operating profit for FY25 was RMB259,626 million, with FY26E expected at RMB276,247 million.
  • Adjusted net profit for FY25 was RMB259,626 million, and is expected to grow to RMB322,790 million in FY26E.
  • Non-IFRS operating margin is expected to decline by 1.4 ppt YoY to 36% in FY26E, due to increased AI investment.

• AI Investment:

  • FY26E will see a significant increase in AI investment, with total costs and expenses for new AI products expected to exceed RMB36bn.
  • This investment is anticipated to support long-term growth and enhance Tencent's position in AI-related services and products.
  • The company is developing agentic AI services within Weixin and introducing productivity AI agents, such as WorkBuddy and Qclaw, to its social platforms.

• Valuation and Target Price:

  • The SOTP-derived target price is HK$750.0, a slight decrease from the previous HK$760.0.
  • The target price reflects a 36.2% upside from the current price of HK$550.50.
  • The valuation breakdown includes contributions from various business segments, including games, SNS, marketing services, fintech, cloud, and strategic investments.

Key Business Segments

• Games:

  • Revenue in 4Q25 reached RMB59.3bn, representing 31% of total revenue.
  • Domestic and international games revenue grew by 15% and 32% YoY, respectively.
  • New titles like Roco Kingdom: World and HoK: World are expected to boost FY26E revenue growth.
  • Valuation: HK$347.4 per share, based on 24x 2026E PE.

• Social Network Services (SNS):

  • Revenue in 4Q25 was RMB41.1bn, accounting for 21% of total revenue.
  • AI-enhanced ads and pricing contributed to the growth.
  • Valuation: HK$33.2 per share, including Tencent Video (3.5x 2026E PS) and other membership services.

• Marketing Services:

  • Revenue in 4Q25 grew by 17% YoY to RMB41.1bn.
  • Strong performance of Weixin Video Account and Mini Program supports growth.
  • Valuation: HK$148.5 per share, based on 22x 2026E PE.

• Fintech and Business Services (FBS):

  • Revenue in 4Q25 increased by 8% YoY to RMB60.8bn.
  • AI-related services and higher e-commerce tech service fees contributed to growth.
  • Valuation: HK$105.8 per share, based on 4.5x 2026E PS, reflecting leadership in digital payments and potential fintech opportunities.

• Tencent Cloud:

  • Achieved positive adjusted operating profit of RMB5bn in FY25.
  • Expected to contribute to growth due to increased AI demand and higher-margin SaaS & PaaS offerings.
  • Valuation: HK$33.4 per share, based on 4.5x 2026E PS, at a discount to the industry average.

• Strategic Investments:

  • Valuation includes the current market value of listed investments and book value of unlisted ones.
  • A 30% holding company discount is applied to the fair value of equity investments.
  • Valuation: HK$72.7 per share.

• Net Cash:

  • Valuation: HK$8.7 per share.

Financial Highlights

• Earnings Summary:

  • FY26E adjusted EPS is expected at RMB30.3, with a slight decrease compared to the previous forecast of RMB31.2.
  • Consensus EPS for FY26E is RMB31.7, with a forecasted increase to RMB35.1 and RMB40.1 in FY27E and FY28E, respectively.
  • Adjusted net margin is expected to decline slightly in FY26E but remain strong overall.

• Valuation of Core Business:

  • Total valuation of core business is estimated at HK$677.0 per share.
  • Strategic investments are valued at HK$72.7 per share, contributing to the overall target price.

Conclusion

Despite the anticipated drag on short-term earnings from increased AI investment, Tencent remains optimistic about the long-term benefits of its strategy. The company maintains a "BUY" rating, citing the resilience of its core businesses and the potential of emerging AI opportunities. The target price of HK$750.0 reflects a comprehensive SOTP valuation, incorporating both the core business and strategic investments.