CLSA Maintains "Highly Confident Outperform" Rating on Tencent with HK$740 Price Target

Deep News08-07

CLSA released a research report forecasting that TENCENT (00700) will report total revenue and adjusted EBIT of RMB 202 billion and RMB 75.6 billion for the second quarter, representing year-on-year growth of 9.7% and 9.1% respectively, with relatively stable profit margins. The growth is expected to be driven by new games including Delta Force, Valorant Mobile, and 洛克王国: World, which should help online games regain double-digit revenue growth of 10% year-on-year, although this is partially offset by a slowdown in evergreen games.

Online advertising revenue is expected to continue recording approximately 20% year-on-year growth, while commercial services revenue may accelerate to 20% year-on-year growth, boosted by AI-driven demand. CLSA maintains its "Highly Confident Outperform" rating for TENCENT with an unchanged target price of HK$740.

The brokerage anticipates that domestic game revenue will return to double-digit growth in the second quarter, forecasting a 10% year-on-year increase to RMB 44.4 billion. This growth is primarily supported by the strong performance of Delta Force and new titles such as Valorant Mobile and 洛克王国: World. Domestic game revenue will also benefit from deferred revenue generated during the stable performance of the 2026 first-quarter Lunar New Year period. However, several evergreen games are expected to experience a significant slowdown in the second quarter.

CLSA projects that international game revenue will grow 9.8% year-on-year to RMB 20.6 billion in the second quarter. The firm estimates that fintech and commercial services revenue will increase 9% year-on-year to RMB 60.6 billion during the same period, driven by accelerated growth in cloud services and enterprise SaaS, partially offset by a slowdown in payment business growth. Commercial services revenue should grow more than 20% year-on-year, supported by increased adoption of mini-programs, improved SaaS monetization, strong demand for AI inference, and price increases. TENCENT's Hy3 model has become one of the top three models on OpenRouter, while WorkBuddy is the most widely used office agent on PCs in China.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

Comments

We need your insight to fill this gap
Leave a comment