Dongfang Securities has released a research report maintaining a "Buy" rating on Tencent Holdings (00700) with a target price of HK$588.53. The report anticipates an acceleration in the growth rates of Tencent's gaming and fintech & business services segments. Future contributions from major upcoming games such as "Lock Kingdom" and "Lili's Miniature World" are expected to drive incremental growth in 2026. The firm forecasts IFRS net profit attributable to shareholders for 2026-2028 to be RMB 253.8 billion, RMB 283.7 billion, and RMB 322.9 billion, respectively. These projections have been adjusted from previous estimates of RMB 241.6 billion and RMB 281.9 billion for 2026-2027, based on revised assumptions for revenue, gross margin, and expense ratios following the company's financial report. The valuation, derived from a sum-of-the-parts (SOTP) model, supports the target price of HK$588.53 (RMB 514.15, using an exchange rate of HKD/RMB=0.87). Key points from Dongfang Securities' analysis are as follows:
Tencent reported its Q1 2026 results, with revenue of RMB 196.5 billion (year-over-year growth of 9%), slightly below market expectations by 1.5%. This shortfall was primarily attributed to the later timing of the Lunar New Year holiday, which deferred the recognition of significant gaming revenue. Net profit attributable to shareholders reached RMB 58.1 billion (yoy +22%), exceeding market expectations by 6%, driven by better-than-anticipated gross margin and management expense ratios.
In the Value-Added Services segment, Q1 2026 revenue was RMB 96.1 billion (yoy +4%). Gaming revenue specifically amounted to RMB 64.2 billion (yoy +8%), which was 4% below consensus, again due to the holiday-related deferral. While domestic recognized revenue grew 6%, actual domestic gaming gross billings increased over 10%. Titles such as "Honor of Kings," "Peacekeeper Elite," and "Delta Action" achieved record-high gross billings. Overseas gaming growth was 13%, primarily driven by "Clash of Clans," "Wuthering Waves," and "Valorant" on PC.
Dongfang Securities expects a significant year-over-year increase of 18% in gaming revenue for Q2 2026, supported by: 1) Strong performance from new games like "Lock Kingdom," which has surpassed 13 million daily active users. 2) The release of deferred gross billings from evergreen games following the Lunar New Year. Furthermore, several major titles, including "Lili's Miniature World," are scheduled for launch later in 2026.
Marketing services revenue for Q1 2026 was RMB 38.2 billion (yoy +20%), surpassing expectations by 1.3%. This outperformance was fueled by upgrades to AI-driven ad recommendation models and the expansion of closed-loop marketing capabilities within the WeChat ecosystem, leading to higher average ad prices. The firm anticipates this segment will maintain a 19% year-over-year growth rate in Q2 2026.
Revenue from FinTech and Business Services reached RMB 59.9 billion in Q1 2026 (yoy +9%). Dongfang Securities believes growth in the payments business is poised to improve as deflationary pressures ease. Business Services revenue grew 20% year-over-year, driven by rising global demand for computing power. Given increasing demand and a more favorable pricing environment, the firm expects cloud business growth to accelerate in 2026. It is further anticipated that the delivery of domestically produced chips will alleviate computing power constraints in the second half of 2026, leading to sustained acceleration in cloud services growth.
The report concludes with risk warnings, including policy risks, potential underperformance of gaming revenue, and competitive risks in the advertising industry.
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