20260410-招银国际-腾讯控股-00700.HK-Expect_resilient_core_business_growth_AI_investment_to_strengthen_competitive_moat_7页_1mb

Tencent (700 HK) Summary

Core Content

Tencent is expected to deliver solid performance in the first quarter of 2026 (1Q26E), with total revenue projected to grow by 10% YoY to RMB198.4bn and non-IFRS net income to increase by 9% YoY to RMB66.8bn. This growth is primarily driven by strong performance in core gaming and marketing services, although increased AI investment may partially offset this growth. The company's core businesses continue to benefit from AI integration, maintaining a solid growth momentum.

Despite the short-term margin pressure from AI investments, Tencent is expected to maintain resilient non-IFRS earnings growth in 1Q26E and FY26E. The company's gross profit margin is forecasted to improve by 0.5ppt YoY to 56.3%, while non-IFRS net margin is expected to decline by 0.4ppt YoY to 33.7%. The market appears to have overreacted to the AI investment impact, leading to an attractive valuation of 14x FY26E non-IFRS PE.

Key Points

• Revenue Growth:

  • 1Q26E: +10% YoY to RMB198.4bn
  • FY26E: Expected to grow at 9.5% YoY
  • FY27E: Projected to grow at 7.2% YoY
  • FY28E: Expected to grow at 5.0% YoY

• Marketing Revenue:

  • Expected to increase by 18% YoY to RMB37.5bn in 1Q26E, driven by AI empowerment and increased ad inventory.

• Fintech and Business Services (FBS):

  • Revenue is expected to grow by 8% YoY to RMB59.4bn in 1Q26E, with accelerated cloud revenue growth as a key driver.

• AI Investment:

  • While creating short-term margin pressure, AI investments are expected to create short-term catalysts, such as the launch of HY 3.0 and Weixin AI agents, and to enhance long-term competitiveness.

• Valuation:

  • Current price: HK$504.50
  • Target price: HK$750.00
  • Up/Downside: 48.7%
  • P/E (FY26E): 16.7x
  • P/E (diluted): 17.0x
  • P/B (FY26E): 3.0x

Key Catalysts

• Launch of HY 3.0 Model: Expected in April 2026, marking Tencent's first flagship foundation model post-AI restructuring.
• Upgrade of Agentic Applications: Such as WorkBuddy, which leverages Weixin+AI to enter the AI agent market.
• New Game Launches: Including Honor of Kings: World and Roco Kingdom: World, which will contribute to revenue.
• Marketing Growth: Supported by AI and improved monetization efficiency, expected to outperform the sector.

SOTP Valuation Breakdown

• Games Business: HK$350.5 per share, based on a 24x 2026E PE.
• Social Network Services (SNS): HK$31.3 per share, based on the valuation of Tencent Video and other membership services.
• Marketing Services: HK$148.3 per share, based on a 22x 2026E PE.
• Fintech: HK$105.6 per share, based on a 4.5x 2026E PS.
• Cloud Business: HK$33.4 per share, based on a 4.5x 2026E PS, at a discount to the industry average.
• Strategic Investments: HK$72.7 per share, based on the current market value of listed investments and book value of unlisted investments.
• Net Cash: HK$8.6 per share.

Financial Summary

• Revenue: Expected to grow from RMB660,257mn in FY24A to RMB823,452mn in FY26E.
• Adjusted Net Profit: Projected to increase from RMB222,703mn in FY24A to RMB276,247mn in FY26E.
• EPS (Adjusted): Expected to rise from RMB28.55 in FY24A to RMB30.33 in FY26E.
• Gross Margin: Expected to increase to 56.8% in FY26E.
• Operating Margin: Expected to increase to 31.3% in FY26E.
• Adjusted Net Margin: Expected to increase to 33.5% in FY26E.

Analyst Recommendations

• Rating: BUY (Maintain)
• Target Price: HK$750.00
• Valuation: Based on SOTP analysis, the target price is derived from the sum of the valuations of all business segments.

Analysts

• Saiyi HE, CFA: (852) 3916 1739 | hesaiyi@cmbi.com.hk
• Wentao LU, CFA: luwentao@cmbi.com.hk
• Ye TAO, CFA: (852) 3850 5226 | franktao@cmbi.com.hk
• Shuyin GUO: (852) 3916 3716 | guoshuyin@cmbi.com.hk

Peer Comparison

• Online Games:

  • NetEase: 113.3 (Price), 11% (FY26E EPS growth)
  • Electronic Arts: 202.2 (Price), 31% (FY26E EPS growth)
  • Average PE: 18x

• Marketing Services:

  • Focus Media: 6.3 (Price), 33% (FY26E EPS growth)
  • Meta: 628.4 (Price), 7% (FY26E EPS growth)
  • Average PE: 20x

• Online Video:

  • iQiyi: 1.3 (Price), -1.4% (FY26E revenue growth)
  • Mango Excellent Media: 20.9 (Price), 9.8% (FY26E revenue growth)
  • Average PS: 1.5x

• Cloud:

  • Microsoft: 373.1 (Price), 15.5% (FY26E revenue growth)
  • Google: 316.4 (Price), 19.5% (FY26E revenue growth)
  • Average PS: 5.2x

Risk and Disclaimer

• The report contains general information and is not tailored to individual investors.
• Past performance does not guarantee future results.
• The value of investments may fluctuate based on market conditions.
• CMBIGM is not liable for any losses or damages resulting from reliance on the report.