"Da Xing" CMB International raises Tencent's target price to 604 yuan, AI ecosystem provides imaginative space

CMB International published a research report indicating that Tencent (00700.HK) achieved a year-on-year revenue growth of 13% in the first quarter of this year, exceeding the bank's and market's general expectations by 4% and 3%, respectively. The adjusted earnings per share were also 10% and 3% higher than the bank's and market's expectations. Gross profit grew by 20% year-on-year, with a growth rate higher than that of revenue. During the period, the gaming, social, marketing services, and fintech and enterprise services businesses all recorded good growth.

CMB International expects that, under the impact of increased investment in AI and capital expenditures, the growth rate gap between Tencent's operating profit and revenue will narrow. It is anticipated that the trend of profit growth outpacing revenue growth will remain unchanged. Based on performance and stable shareholder returns, along with the imaginative space provided by the AI ecosystem, the rating is maintained at "Buy," and the target price is raised to 604 yuan, corresponding to a projected price-to-earnings ratio of about 20 times for 2025