CICC released a research report maintaining its "Outperform" rating and HK$700 target price on Tencent Holdings (00700). The firm largely kept its 2025 revenue forecast unchanged. Considering volatility in fintech revenue, it lowered the 2026 revenue forecast by 1% to RMB 831.7 billion. Due to fluctuations in other income, it raised the 2025/2026 Non-IFRS profit forecasts by 1% each to RMB 262.9 billion and RMB 294.8 billion, respectively, while newly introducing 2027 revenue and Non-IFRS profit forecasts of RMB 903.5 billion and RMB 326.9 billion. CICC's main views are as follows:
Domestic games show steady growth, while overseas growth returns to a normalized pace domestically. Considering the seasonal lull and the relatively high base in 2024, the firm expects 4Q domestic revenue to increase 12% year-on-year. Evergreen games like "Honor of Kings" maintain a stable foundation, while newer titles such as "Delta Action" continue to see rising revenue. Overseas, the firm expects 4Q growth to normalize (up 24% YoY), with games like "Clash Royale" from Supercell sustaining high revenue growth. Looking ahead to 2026, high revenue recognized in 2025, due to the lag between game revenue booking and actual collections, partly secures growth for 2026. Furthermore, recently launched titles like "Reverse 1999: Future" and upcoming products such as "Honor of Kings: World," "Rock Kingdom: World," and "CrossFire: Rainbow" are also highly anticipated.
Advertising continues its strong growth trajectory, while Fintech and Business Services maintain steady expansion. The firm forecasts 4Q25 advertising revenue to grow 19% year-on-year. Advertising in 2026 is expected to maintain healthy growth faster than the broader market, driven by deeper utilization of ecosystem inventory from Video Accounts and Mini Programs, AI efficiency improvements, and enhanced user stickiness. For 4Q25, Fintech and Business Services revenue is expected to increase 10% YoY. Within this, Fintech growth in 4Q25 may slow sequentially from 3Q due to macroeconomic factors, although the proportion of high-margin derivative businesses is expected to further increase. Business Services growth is likely to be supported by Video Account e-commerce tech service fees and cloud computing revenue.
Tencent's AI strategy is accelerating, with R&D investment expected to continue growing rapidly. Since October 2025, Tencent has been active in AI, appointing former OpenAI researcher Yao Shunyu as Chief AI Scientist in the CEO/President's Office, upgrading its large model R&D architecture, and releasing the Hunyuan Large Model 2.0 in December. Multimodal technology is iterating intensively, expanding influence through open-source initiatives and global expansion. The firm believes Tencent's core businesses will sustain high-quality growth, but accelerated AI investments may lead to an increase in the R&D expense ratio. It forecasts 4Q25 adjusted operating profit and adjusted net profit to both grow 23% year-on-year.
Risks include macroeconomic uncertainty, regulatory factors, and costs or expense ratios exceeding expectations.
Comments