Guosen: Maintains Tencent (00700) "outperform market" rating, main business growth is stable.

Guosen released a research report stating that it maintains a "outperform the market" rating for TENCENT (00700). Taking into account the impact of AI investment and depreciation, the bank has lowered its profit forecast, with the estimated adjusted net profits for 2026-2028 being 268.5/308.1/340.8 billion yuan (reduced by -3/-2/-2%). The company has increased its investment in AI talent and other areas, enhancing its research capabilities, and the Mixologist 3.0 model uses fewer parameters compared to top open-source models both domestically and internationally, giving the company an advantage on the product side. Guosen is optimistic about Tencent's overall ecosystem capabilities. Key points from Guosen's analysis: - Predicts a 10% growth in revenue in the second quarter, with adjusted net profit attributable to equity holders increasing by 5%. - In the second quarter of 2026, the bank predicts Tencent's revenue to be 202.4 billion yuan, a year-on-year increase of 10%. Overall business growth remains stable. For the same period, it is estimated that the non-IFRS operating profit will be 75.7 billion yuan, a year-on-year increase of 9%. The non-IFRS net profit attributable to equity holders is expected to be 66 billion yuan, a year-on-year increase of 5%; the non-IFRS net profit margin is 33%, down by 1 percentage point compared to the previous quarter. The gross profit margin is expected to remain strong at 57%, mainly driven by high-margin businesses such as video accounts, e-commerce commissions, and evergreen games. Expenses are expected to increase by 21% year-on-year, mainly due to depreciation of capital expenditure, AI application investments, etc. The estimated management expense ratio (including R&D) is 19%, a year-on-year increase of 2 percentage points. The progress of Mixologist 3.0 is good, showing the ability to achieve top-notch open-source model performance with lower parameter usage. The total number of parameters in the Tencent 3.0 model is 295 billion, with 21 billion activation parameters and a context length of 256K. The Mixologist 3.0 model has been focused on improving training quality after key enhancements. - Gaming: Steady growth, with overseas games affected by base year factors. - In the second quarter of 2026, the bank predicts that the company's online gaming revenue will be 65.8 billion yuan, a year-on-year increase of 11%. Domestic gaming revenue is expected to increase by 12% year-on-year. Revenue from games such as "Rock Kingdom" for mobile devices is gradually growing, while "King of Glory World" is implementing a long-term operational strategy with continuous optimization. The King IP has a large user base and significant potential, but there is some expectation gap among MOBA players for open-world RPG gameplay. Adjustments have been made based on user feedback since the product launch. Overseas gaming revenue is expected to grow by 10% year-on-year. The explosive growth of casual games overseas in May 2025 has significantly raised the base year comparison for the same period this year; Supercell also has some base year pressure. In addition, new games will have limited contributions in the short term. - Marketing services: Predicted revenue growth of 18%. - In the second quarter of 2026, the bank estimates Tencent's marketing services revenue to be 42.2 billion yuan, an 18% year-on-year increase. The core growth is driven by the increase in video account quantity and price, as well as synergies from commercialization of various WeChat ecosystem positions such as "Search and Small Program." In addition, the efficiency of full-chain delivery driven by the Mixologist's large model and further enhancement of Mixologist 3.0 model capabilities are expected to further boost advertising revenue growth. - Financial technology and enterprise services: Expected growth of 10%. - In the second quarter of 2026, the bank predicts the revenue from financial technology and enterprise services to be 61.1 billion yuan, a 10% year-on-year increase. The main sources of revenue are from the payment business within Tencent's financial technology big picture. The payment business is related to offline consumption and is expected to be impacted by macroeconomic factors. According to the People's Bank of China's balance sheet, non-financial institutions' deposits (customer reserve deposits held by payment institutions at the central bank) grew by 4%/3% year-on-year in April and May. As for enterprise services, with growth in e-commerce commissions and cloud services, the bank predicts a 23% year-on-year increase in revenue for the second quarter of 2026. Tencent leverages its product and ecosystem advantages, with Workbuddy becoming the most popular Chinese office intelligent platform in terms of user numbers. Workbuddy has lowered the barrier to entry, caters to ordinary workplace users, and integrates 20+ skills packages (data processing, invoices, archiving, competitive bidding, public opinion tracking, sales insights, etc.) and other Mixologist models (Deepseek, KNOWLEDGE ATLAS, Kimi, Minimax), binding with WeChat, Enterprise WeChat, QQ, Feishu, DingTalk, etc. According to iResearch, Workbuddy's PC monthly visits in March reached 8.85 million, leading the second-placed platform (ByteTrae.cn) by 2.6 times. - Risk factors: policy risks; intense competition in the advertising industry; risks of new games not being launched on time, etc.