Guotai Haitong maintains "buy" rating on TENCENT (00700) with a target price of 785 Hong Kong dollars.

Guotai Haitong released a research report stating that it maintains a "buy" rating on TENCENT(00700), based on the injection of AI technology. Adjusted 25-27E revenue is set at 752.9/841.8/925.3 billion yuan (previously 733.8/797.3/871.3 billion yuan), and adjusted net profit is 261.9/301.8/338.3 billion yuan (previously 255.3/282.5/314.3 billion yuan). It is given a 25xPE for 2025, with a corresponding target price of 785 Hong Kong dollars. Guotai Haitong's main points are as follows: Revenue and profit exceeded expectations, with a decline in capital expenditures. In the third quarter of 2025, Tencent achieved revenue of 192.9 billion yuan, an increase of 15.4% year-on-year. Adjusted operating profit was 72.6 billion yuan, up 18.4% year-on-year; adjusted operating profit margin was 37.6%, up 1.0 percentage point year-on-year. Adjusted net profit was 70.6 billion yuan, an increase of 18.0% year-on-year; adjusted net profit margin was 36.6%, an increase of 0.8 percentage points year-on-year. Research and development investment was 22.8 billion yuan, with a research and development spending rate of 11.8%, up 1.1 percentage points year-on-year. Capital expenditure was 13 billion yuan, down 24.0% year-on-year; cash flow capital expenditure payment was 20 billion yuan, up 66.7% year-on-year. International games showed strong growth, highlighting the advantages of Evergreen games. In the third quarter of 2025, the value-added services business achieved revenue of 95.9 billion yuan, an increase of 15.9% year-on-year; gross profit margin was 61.2%, up 3.7 percentage points year-on-year. Domestic/overseas game revenue was 42.8 billion yuan/20.8 billion yuan respectively, an increase of 14.7% and 43.4% year-on-year. "Delta Force" ranks in the top three in the industry, "Clash Royale" reached a new high in daily active accounts and revenue in September, and "The Fading Light: The Beast" has received "extremely good" user ratings on the Steam platform. Social network revenue was 32.3 billion yuan, up 4.4% year-on-year, benefiting from the growth of video live streaming services, music subscription revenue, and small game platform service fees. AI integrated into the social ecosystem, empowering healthy growth. In the third quarter of 2025, marketing services achieved revenue of 36.2 billion yuan, an increase of 20.8% year-on-year. Due to the increase in user engagement and ad load rates, the exposure of ads has increased, and the growth of eCPM driven by AI-targeted advertising has led to an increase in ad spending by major industries. The company has launched the intelligent delivery product matrix Tencent Advertising AIM+, supporting advertisers in automatically configuring targeting, bidding, and placements, optimizing ad creativity. Gold Science Enterprise Services achieved revenue of 58.2 billion yuan, up 9.6% year-on-year. Gold Science revenue grew by a high single-digit percentage year-on-year; enterprise services revenue grew by over 10%, benefiting from the growth of cloud services revenue and the expansion of transaction volume in the WeChat small store driving an increase in merchant technology service fees. According to LMArena, the mixed element image generation model ranks first in the global text-to-image model.