Daiwa downgraded Tencent's target price to 710 yuan with a "Buy" rating

Daiwa published a research report, lowering the target price for Tencent (00700.HK) from HKD 725 to HKD 710, corresponding to a forecasted price-to-earnings ratio of 20.2 times, maintaining a "Buy" rating, which corresponds to a forecasted price-to-earnings ratio of 20.2 times for 2026.

The firm stated that it has lowered its forecast for Tencent's local game revenue in the first quarter to reflect a later Chinese New Year in 2026 (February vs. January 2025), resulting in a shortened revenue recognition window, along with a higher base from the same period last year. However, SensorTower data shows that local game revenue grew approximately 12% quarter-on-quarter, and as the temporary impact fades and new games contribute, game revenue is expected to accelerate again in the second quarter. For international games, the firm has lowered Tencent's growth forecast for 2026 to reflect the normalization of integration benefits.

Daiwa indicated that the forecast for social network revenue has been lowered, primarily due to players' spending continuing to shift towards direct in-game purchases and cross-platform non-mobile channel payments, a trend that is more pronounced in new games. Regarding AI investments, there are plans to add approximately RMB 18 billion in AI investments in 2026, mainly affecting operating expenses, including large model research and development, cloud-related costs, and promotion expenses for virtual currency