CMSC: Maintains "Strong Buy" Rating on TENCENT(00700) as AI Ecosystem Deployment Iteration Speeds Up.

CMSC released a research report stating that it maintains a "strong buy" investment rating for TENCENT (00700). The company's main business is stable, with the core gaming business performing well. Under the empowerment of AI, the benefits of various business lines such as advertising have significantly improved. With the upgrade of WeChat Mini Program, the e-commerce ecosystem is gradually improving. The cloud business is expected to gradually increase, and the rising proportion of high-margin businesses is expected to continue to support the improvement of the company's profit margin. The firm continues to be optimistic about the advancement of the company's various AI-related businesses under the advantage of its social traffic, coupled with shareholder returns expected under share repurchases. The company continues to increase investment in the field of AI and has benefited from it. In terms of WeChat, AI functionality has been further enriched to empower more application scenarios, such as providing intelligent keyword search in content browsing, providing smart customer service replies for WeChat Mini Program merchants, and supporting automatic text summarization for video content. In terms of games, AI empowers content production and virtual teammates, enhances the applications within popular games like "King of Glory" and "Peace Elite," and empowers marketing solutions to attract players. In terms of advertising, AI applications have been further increased in creation, delivery, recommendation, and performance analysis to improve click-through rates, conversion rates, and advertiser returns. Currently, the company's AI capabilities have made substantial contributions to advertising and long-term gaming businesses. The company's C-end application, Yuanbao DAU, ranks in the top 3 among domestic AI-native applications. On September 28, Huanyuan released and open-sourced the native multimodal image model "Huanyuan Image 3.0" and ranked first in the native image list released by LMArena. With the company further increasing investment in Yuanbao applications and new AI opportunities within WeChat, short-term cost increases are expected, but the firm believes that the operating leverage brought by the company's existing high-quality income will help absorb the related impacts and maintain financial stability. The implementation of relevant application scenarios is expected to accelerate, bringing incremental growth to the company's performance.