尽管投资AI，第一季度的收入增长依然坚韧；AI进展稳健

investment; solid AI progress Resilient 1Q26 earnings growth despite AIinvestment; solid AI progress Target PriceHK$750.00Up/DownsideCurrent PriceHK$462.60 Tencentreported 1Q26results:total revenuegrewby9% YoY to RMB196.5bn,1.5%belowBloombergconsensusestimate, as the latertiming of the2026Spring Festivalled toless revenue recognitionfor games business in 1Q26;non-IFRS operating incomeincreasedby9% YoY to RMB75.6bn,largelyin linewiththeconsensusand ourestimate.Non-IFRS operating profitexcluding newAI productinvestment grew by 17% YoY to RMB84.4bn, which in our viewdemonstrates Tencent’s strong operating leverage and capability to maintainsteadyearnings growth despite stepped-up AI investment.The quarterlyearningsimpact from AI investment(c.RMB9bn)is also in line with China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hkWentao LU, CFA luwentao@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hkStock Data Core businesses maintained healthy momentum.In1Q26: 1)Gamesrevenuegrewby8% YoY toRMB64.2bn,withdomestic games/internationalgames revenueup by 6%/13% YoY.The growth decelerated (+21% YoY in4Q25) asthe latertiming of the2026Spring Festivalled to fewer days forrevenue recognition ofthepeak season in 1Q26.Domesticgamesgrossreceiptmaintainedteens% YoY growth, driven bybothevergreenand newgames;2)Marketing services revenue increased by 20%YoY toRMB38.2bn,as AI continued to improvead performance and pricing.Theautomatedadcampaign solution, AIM+,alreadypoweredc.30% of total Solid progress on the AI fronts.Tencentachieved solid progress on theLLM& agentic AIfronts: 1)HY3Previewmodeltopped token usage rankingon OpenRouter(23 Apr-12 May), thanks to itscomprehensive intelligenceandstrong cost efficiency;2)WorkBuddy,AI productivity application,achievedsolid user growth with over 80% retention rate among payingusers.WorkBuddyis nowthe most popular productivity AI agent service inChina, measured by DAU,according to management. Looking ahead, Stable margin despite increased AI investment.Non-IFRS OPM wasflattish YoY at 38.5% in 1Q26, as the operatingleveragewaslargelyoffsetby increased AI investment.Excludingearnings impact from thenew AIproduct investment, non-IFRS OPM expanded by c.3ppt YoY to 43.0% in1Q26. Overall, we expect Tencent to maintain steady non-IFRS OP growth Source: FactSet Business forecasts updateand valuation Our SOTP-derived target price of HK$750.0 comprises, per share: 1) HK$349.5for the games business, based on an24x 2026E PE, which isat a premiumto theaverage PE for its global gaming peers(17x), mainly due to Tencent’s strong 2) HK$31.3for the SNS business, including the market cap of Tencent’s stake in itssubsidiaries, the valuation of Tencent Video (based on a 3.5x 2026E PS, at a premium tothe1.4x average PS of its peers given its content and user traffic leadership), and the 3) HK$150.1for the marketing services business, based on a 22x 2026E PE, which is at apremium to the industry average (19x). This reflects Tencent’s more resilient ad revenue 4) HK$105.7for the fintech business, based on a 4.5x 2026E PS, at a premium to the peeraverage (1.4x). This mainly reflects Tencent’s strong leadership in China’s digital payment 5) HK$33.4for the cloud business, based on a 4.5x 2026E PS, at a discount to the industryaverage (5.7x)as Tencent’s current offerings mainly involve the lower-margin IaaS 6) HK$71.1for strategic investments, based on the current market value of Tencent’s listedinvestments and the book value of its unlisted investments. We apply a 30% holding 7)HK$8.7for net cash. Our calculation of the valuation of Tencent’s strategic investments is based on the currentmarket value of Tencent’s listed investments and the book value of its unlisted investments. Disclosures& Disclaimers Analyst Certification The research analyst who is primary responsible for thecontent of this research report, in whole or in part, certifies that with respect to the securities or issuerthat the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securitiesor issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (asdefined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listedcompanies covered in this report.CMBIGM or its affiliate