CICC maintains a "outperform" rating on TENCENT (00700) with a target price of HK$600.

CICC issued a research report stating that based on the revenue growth of TENCENT (00700) from advertising and cloud computing, the bank previously raised the revenue for 2025/2026 by 1% and 2%, to 717.2 billion and 757.6 billion RMB respectively, maintained the Non-IFRS net profit forecast for 2025/2026 unchanged, and maintained a "outperform industry" rating. Due to the upward shift in market valuation, the target price was previously raised by 8.5% to 600 Hong Kong dollars, corresponding to a forecasted Non-IFRS P/E ratio of 20.6 times for this year. In terms of the gaming business: in the fourth quarter of last year, gaming revenue increased rapidly, with revenue in the previous quarter increasing by 20% year-on-year to 49.2 billion RMB, exceeding the bank's expectations by 3%. Overseas gaming revenue increased by 15% year-on-year, with strong performance in games such as "PUBGM" and Supercell's "Brawl Stars"; domestic gaming revenue increased by 23% year-on-year, driven by games such as "Honor of Kings," "Peace Elite," and "DNF Mobile". The bank believes that Tencent's focus on evergreen games as an important strategy (with 14 evergreen games planned for 2024) will benefit the steady and continuous growth of gaming. The bank expects gaming revenue to increase by 15% year-on-year in the first quarter of this year. Tencent's AI layout strategy: (1) In terms of large-scale models, Tencent will adhere to a self-developed hybrid large-scale model and external open-source models for optimal coordination; (2) Adhere to a multi-model strategy to build ToC (consumer-oriented) products, the company stated that a combination of multiple models can better handle complex tasks, Tencent provides active reasoning support for new AI applications (such as QQ and WeChat AI); (3) On the enterprise service side, provide cloud services (such as IaaS, PaaS, SaaS business) to external customers through AI empowerment; (4) Empower existing businesses, Tencent has optimized advertising technology, game and video and music content creation, recommendation, and user experience based on AI. The bank observes that users using QQ and WeChat AI are rapidly increasing, and the bank believes that Tencent may take the lead in the AIToC application innovation track in the early stage of AI development based on its strong social ecosystem resources. In terms of capital expenditure: the company invested 76.8 billion RMB in capital expenditure for the full year 2024, and the company guided that capital expenditures in 2025 will account for a low double-digit percentage of revenue. Faced with the long-term opportunities in AI, the company is striving to balance AI capital expenditure with immediate shareholder returns in order to maximize long-term shareholder returns: the company paid out 32 billion Hong Kong dollars in dividends in 2024; completed a buyback of 11.2 billion Hong Kong dollars in 2024. The company announced an increase in annual dividends by 32% to 41 billion Hong Kong dollars in 2025, and plans to repurchase shares worth at least 80 billion Hong Kong dollars.