腾讯控股：执行力强劲，AI赋能各业务

We expect Tencent to demonstrate solid execution across segments in 1Q.For online games, we reaffirm solid grossing for evergreen titles during CNYand maintain our assumptions on revenue deferral and consolidation ofacquired studio. For marketing services, revenue acceleration is expectedon deepening collaboration with key ecommerce platforms and strength inVideo Accounts. Tencent is well-positioned to capture Agentic AI backed byits ecosystem. Buy. Strong execution counts.In 1Q, we estimate total revenue growth of about 10% YoY (largelyunchanged) to about RMB198bn. By segment, we maintain our online game revenue growthof about 10% YoY unchanged (vs consensus at 13% YoY), considering: (1) domestic games:revenue deferral impact due to late Chinese New Year vs last year. Solid grossing performanceis seen for evergreen games titles during holidays. (2) International games: revenue deferralimpact from the lapsing of Supercell grossing and normalization of acquired studio. On newgames, Roco Kingdom World was ranked top 10 in iOS grossing after launch in late Mar.On the other hand, Tencent will release PC version for Honor of Kings World on 10 Apr andmobile version later this month. We expect AI to drive user engagement and monetization. Inmarketing services, we expect revenue growth of ~18% YoY (unchanged) to RMB37.6bn, takeninto consideration deepening in collaboration with key ecommerce platforms and increasedinventory for rewarded ads in Video Accounts. For fintech and business services (FBS), weestimate revenue growth of 9% YoY (vs our prior estimate at 7% YoY), factoring in cloudrevenue acceleration and our prior conservative payment assumptions. We think Tencentdemonstrates strong execution and expect non-IFRS operating profit growth of 9% YoY (ourprior estimate at 4% YoY) to about RMB75bn. We estimate non-IFRS earnings to grow at 9%(vs our prior estimate at 4% YoY) to RMB66.8bn, factoring in AI investments. Takeaways from Group Investor Call in Mar-26.Highlights include (1) AI investments includetraining compute, AI talent, user acquisitions, and inference; (2) capex should increase morethan last year, and compute will be a mix of capex / lease; (3) focus on SOTA model in Chinaand HY 3.0 is big upgrade; (4) proven track record to turn new investments profitable over time;(5) AI is positive for games; (6) solid ad growth in 1Q. Please refer to report (link) for details. Focus areas of earnings call.These include: (1) AI strategy updates and feedback on variousAI agents (e.g., WorkBuddy, QClaw). (2) AI model competitive landscape and latest feedback onHY3.0. (3) Domestic online gaming strategies, such as updates on rejuvenating existing games(e.g., HoK, PKE) and emerging franchises. (4) Mini-games and new domestic games in thepipeline. (5) Overseas gaming strategies. (6) Advertising outlook and trends across differentindustry categories. (7) Updates on Mini Shops strategies and competitive landscape. Continued overleaf... The Long View: Tencent Holdings Investment Thesis Risk/Reward - 12 Month View •Tencent's evolution from consumer to industry internet, while retainingits solid foundation in gaming and growing its ad market share, paves theway for future success, in our view.•Expected solid revenue growth is backed by multiple drivers that lowerconcentration risk amid macro headwinds.•The social ecosystem of Tencent, with an emphasis on ROI andsignificant synergistic effects, gives it a key competitive edge over itspeers amid macro headwinds and intensified competition. Upside Scenario,HK$954, +88% Downside Scenario,HK$477, -6% Base Case,HK$795, +56% •Successful launch of strong-grossing newgames.•Faster-than-expected growth in online ads onmacro recovery.•Narrower-than-expected loss from cloudbusiness segment.•Upside PT of HK$954 based on a SOTPvaluation. •We consider Tencent a global mobile gameleader with a proven track record in developingsuccessful games.•The success ofHoK, with record-high DAU andpositive feedback on new games, backed byportfolio strategy, should drive LT growth.•We view content as king in video advertising.•PT of HK$795 based on a SOTP valuation. •Unsuccessful launch of new games.•Slower-than-expected growth in online ads onmacro headwinds.•Aggressive subsidy campaign on paymentsand capex spending on Cloud.•Downside PT of HK$477 based on a SOTPvaluation. Sustainability Matters Catalysts •Launch of high-grossing new games.•Stronger-than-expected outlook.•Faster-than-expected ad market share gains. Top Material Issue(s): 1) Data security and customer privacy.Privacy protection and data securitymeasures are important for a technology company. The company needs to develop and usetechnology ethically and maintain the trust of partners, customers, counterparties.2) Employeeengagement, diversity, & inclusion.Talent is key in creating value for the company, and workforcediversity is important for innovation. The company should prioritize employee engagement and work-life b