UBS: Maintains Tencent (00700) target price of 780 Hong Kong dollars and reiterates "buy" rating.

UBS released a research report stating that it maintains a target price of HK$780 for Tencent (00700) and reiterates a "buy" rating. The bank expects Tencent's annual revenue to increase by 9% year-on-year in the second quarter of 2026, with adjusted net profit growing by 4% to RMB 66 billion. Looking at the different business segments: 1) Games: i) Domestic market: The bank expects revenue growth in the second quarter to rebound to 10% (from 6% in the first quarter), mainly due to the strong performance of evergreen games and incremental contributions from newly launched games. ii) International market: With the merger of Supercell and Kuro, the bank expects revenue growth in the international market to slow down to 8% (from 13% in the first quarter). 2) Advertising: Expected to grow by 18% year-on-year (from 20% in the first quarter), despite a higher base, the growth rate is slowing down. However, advertising technology upgrades, account videos (increasing traffic and advertising load), and advertising formats with higher effective cost per mille (eCPM) will continue to support growth. 3) Financial technology (FBS): Growth is expected to slightly slow down to 8% (from 9% in the first quarter), mainly due to the impact of the macroeconomic weakness leading to a slowdown in payment growth. With improvements in chip supply, the growth of cloud computing business is expected to accelerate, with further enhancements expected in the second half of the year. The bank expects gross profit margin to increase by 11% year-on-year (with a gross profit margin of 57.9%), mainly benefiting from the optimization of its business structure towards higher-profit businesses; adjusted revenue expected to increase by 7% year-on-year to RMB 74 billion, mainly due to increased AI operational expenses and depreciation.