CICC: Maintains TENCENT (00700) Outperform rating with a target price of HK$700.

CICC released a research report, maintaining TENCENT (00700) 26 and 27 year revenue and profit forecasts unchanged. It maintains an "outperform" rating and a target price of 700 Hong Kong dollars, corresponding to 19x/17x 26e/27e Non-IFRS P/E, indicating a 26% upside potential from the current stock price. The current trading is at 15x/13x 26e/27e Non-IFRS P/E. Recently, Tencent has made significant progress in the field of AI, showing a positive embrace of the AI Agent trend. Key points from CICC are as follows: Recently, Tencent has focused on the AI Agent track centered around OpenClaw On March 6, Tencent Cloud launched the OpenClaw free installation service at its headquarters square in Shenzhen, attracting over a thousand participants and garnering widespread attention; on March 9, Tencent's full-scenario AI intelligent body, WorkBuddy, officially launched, fully compatible with the OpenClaw skill system, positioned as a "workplace AI assistant," supporting seamless integration with enterprise WeChat, Feishu, and other four major office platforms, as well as free switching between multiple models; concurrent internal testing of QClaw focuses on C-end scenarios (OpenClaw one-click launch package products), allowing users to remotely control computers using natural language in WeChat or QQ to complete tasks. On the base level, Tencent continues to upgrade its MixElement large model family and has recently open-sourced the WorldCompass reinforcement learning training framework. Actively embracing the new trend of AI Agent development, strengthening the foundation to provide the basis for long-term sustainable innovation The market previously had concerns about Tencent's relatively conservative AI investment, the relatively backward state of large models, and the slow progress in AI applications. While, on the other hand, they were concerned that if Tencent were to aggressively invest to catch up, it might put pressure on profits, leading to a continued pessimistic narrative suppressing short-term valuation. Although Tencent's attitude towards AI investment in the industry has been relatively conservative since 2023, the company has gradually formed a positive catching-up trend through introducing top AI talents, actively optimizing the AI organizational structure, and adjusting resource allocation starting from the second half of 2025. Looking ahead to 2026, the bank believes that Tencent is likely to enter a catching-up mode in the field of large models, and its exploration at the application level is also expected to accelerate. The intensive landing of products like WorkBuddy and QClaw is a reflection of its positive response speed. At the same time, the unique ecosystem of WeChat and other platforms' advantages in the Agent scene are expected to be further released. If Tencent can deliver better-than-expected results, its narrative logic may experience a valuation reversal similar to Google's in 2025. Finally, it must be pointed out that AI innovation itself requires long-term investment and there is uncertainty in output, but the bank believes that the market undervalues the importance of Tencent's positive basic business to support long-term innovation. Risk warning: Macroeconomic uncertainties; regulatory factors; costs or expense rates higher than expected; AI progress slower than expected; uncertainty in Agent development.