Sealand: Maintain TENCENT (00700) "Buy" rating with a target price of HKD 627.

Sealand published a research report stating that it expects TENCENT (00700) to have revenues of 823.3 billion, 901.5 billion, and 982.2 billion RMB for the years 2026-2028, with Non-IFRS net profit attributable to the parent of 266.3 billion, 274.3 billion, and 288.1 billion RMB, corresponding to Non-IFRS EPS of 29, 30, and 32 RMB, and Non-IFRS PE of 13.0, 12.6, and 12.0x. According to the SOTP valuation method, it assigns a target market value of 5 trillion RMB / 5.7 trillion HKD to TENCENT's various businesses in 2026, corresponding to a target price of 627 HKD, maintaining a "Buy" rating. Sealand's main points are as follows: Event: On August 12, 2026, the company announced its Q2 2026 financial report, achieving revenue of 204.8 billion RMB (yoy +11%, qoq +4%), operating profit of 67.3 billion RMB (yoy +12%, qoq -0.1%), net profit attributable to the parent of 56.0 billion RMB (yoy +0.7%, qoq -4%), and Non-IFRS operating profit of 75.6 billion RMB (yoy +9%), with Non-IFRS net profit attributable to the parent reaching 68.4 billion RMB (yoy +9%, qoq +0.8%). Views: 1. Operational Data: In Q2 2026, WeChat traffic continued to grow, with consolidated MAU reaching 1.439 billion (yoy +2%, qoq +0.5%); QQ smart terminal MAU rebounded to 520 million (yoy -2%, qoq +0.8%); registered accounts for paid value-added services were 259 million (yoy -1.9%, qoq -2.6%), and Tencent Music's music membership service revenue reached 4.79 billion RMB (yoy +8.1%). 2. Overall Performance: Revenue and gross profit maintained steady growth, with the high-margin self-developed games and marketing services driving the profitability further up. The gross margin in Q2 2026 increased from 57% in the same period last year to 58% (yoy +0.9 pct, qoq +1.2 pct); Non-IFRS operating profit grew by 9% year-on-year, and if new AI products are excluded, Non-IFRS operating profit would grow by 19% year-on-year, with Non-IFRS net profit attributable to the parent increasing 9% year-on-year to 68.4 billion RMB. 3. Value-Added Services: Revenue in Q2 2026 grew by 8% year-on-year, reaching 98.4 billion RMB, accounting for 48% of total revenue for the quarter, with gross margin rising from 60% in the same period of 2025 to 64%. The gaming business performed steadily, with revenue increasing by 11% year-on-year to 65.9 billion RMB, including a 17% year-on-year increase in domestic gaming revenue and a 1% year-on-year decline in international gaming revenue. Social networking business revenue grew by 1% year-on-year, with the total user time on video accounts increasing by more than 20% year-on-year. 4. Marketing Services: Revenue in Q2 2026 increased by 22% year-on-year to 43.6 billion RMB, with growth accelerating from 20% in Q1. The traffic and ad inventory of video accounts continued to grow, while the AI-driven advertisement recommendation model continuously optimized and combined with the AIM+ platform upgrade improved ad conversion efficiency and unit price in tandem. 5. Financial Technology and Enterprise Services: Revenue in Q2 2026 grew by 9% year-on-year to 60.3 billion RMB. Among them, the number of commercial payment transactions increased year-on-year, while the decline in single transaction amounts continued to narrow; cloud business revenue increased by over 20% year-on-year, mainly benefiting from AI-related demand, international business expansion, and increased adoption of general cloud services, with profitability continuing to improve.