CLSA has released a research report lowering its price target for Tencent Holdings (00700) from HK$740 to HK$685, while maintaining a "high-conviction outperform" rating.
The brokerage has cut its adjusted net profit forecasts for the company in 2026 and 2027 by 3% and 7% respectively, mainly reflecting how accelerated artificial intelligence (AI) investments could weigh on third-quarter earnings, particularly the spending tied to model training and the penetration of WorkBuddy.
Nevertheless, the brokerage believes Tencent is stepping up the pace of AI application, with WorkBuddy and "Xiaowei" expected to become leading enterprise and consumer-facing intelligent agents, bringing new growth drivers.
CLSA expects Tencent's third-quarter total revenue to rise 9.4% year on year to RMB 211 billion, mainly supported by solid gaming and advertising businesses and faster cloud growth; adjusted EBIT is expected to fall 2% year on year to RMB 71.3 billion.
By segment, the brokerage expects third-quarter online gaming revenue to grow 7.3% year on year to RMB 68.2 billion, of which domestic gaming revenue is expected to rise 13% year on year to RMB 48.4 billion, while international gaming revenue is expected to fall 4.5% year on year to RMB 19.9 billion.
On the advertising side, third-quarter revenue is expected to grow 19% year on year to RMB 43 billion.
Fintech and business services revenue is expected to grow 9.5% year on year to RMB 63.7 billion, with business services revenue expected to rise 25%, mainly driven by the cloud business.
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