Citigroup: Slightly lowers target price of TENCENT (00700) to 783 Hong Kong dollars, expects stable first quarter in gaming and advertising businesses.

Citi released a research report stating that it has slightly lowered the target price of TENCENT (00700) from 787 Hong Kong dollars to 783 Hong Kong dollars; also believes that the current valuation is attractive, reiterating a "buy" rating, and believing that Mix 3.0 and WeChat AI will help solidify Tencent's AI positioning. Tencent is expected to release its first quarter performance for the 2026 fiscal year on May 13. The bank expects Tencent's first quarter gaming and advertising business to be stable, forecasting a 9.9% year-on-year increase in total revenue to 197.9 billion yuan (same below); non-GAAP net profit is expected to increase by 9.7% year-on-year to 67.2 billion yuan, which is roughly in line with market expectations. Due to seasonal factors of the Lunar New Year and stable performance of evergreen games, overall online gaming revenue is expected to increase by 11.7% year-on-year to 66.4 billion yuan; among them, domestic and international gaming revenue is expected to increase by 10% and 16% respectively. For Tencent's forecasts from 2026 to 2028, Citigroup has revised its total revenue forecast by 0.7%, 0.6%, and 0.5%, and non-GAAP net profit forecast by 1.3%, 2.2%, and 1.6% respectively. Due to the increase in gaming revenue, Citigroup's revenue and non-GAAP net profit forecast for the first quarter of 2026 have been revised up by 0.5% and down by 0.5%, respectively. The bank expects Tencent's revenue and non-GAAP net profit for the second quarter of this year to increase by 9.5% and 9.4% year-on-year, respectively.