UBS expects Tencent's adjusted profit in the first quarter to grow by 12% year-on-year, rating it as "Buy."

UBS published a research report, expecting Tencent (00700.HK) to achieve a year-on-year revenue growth of 11% in the first quarter, with adjusted profit increasing by 12% to RMB 69.2 billion. By business segment, the bank predicts a 13% growth in domestic gaming revenue; a 16% growth in international gaming revenue; an 18% growth in advertising revenue; and a 10% growth in financial technology and enterprise services revenue.

The bank pointed out that the market is focused on Tencent's artificial intelligence strategy and profit margin outlook, as well as the upcoming launch of the Hongyuan 3.0 large language model in mid-April. Management has committed to investing no less than RMB 18 billion in new artificial intelligence products in the fiscal year 2026, but UBS believes that market concerns about the profit pressure from artificial intelligence investments may be exaggerated. The bank estimates that improvements in gross margin and normalization of profits will bring an additional approximately RMB 25 billion or 9% in incremental profit, which is sufficient to offset the increase in artificial intelligence-related expenses and maintain a stable net profit margin.

UBS expects Tencent's adjusted earnings per share to grow by 12% in the fiscal year 2026, assigning a "Buy" rating with a target price of HKD 780