Citi: Raises Tencent Holdings Limited's target price to HKD 695, maintains "Buy" rating
Citi released a research report stating that it has raised the target price for Tencent Holdings Limited from HKD 670, an increase of 3.7% to HKD 695, maintaining a "Buy" investment rating. Citi pointed out that Tencent's gross margin/operating profit/net profit in the first fiscal quarter increased by 20%/18%/22% respectively compared to the same period last year, mainly benefiting from the excellent performance of domestic/international games and online advertising, as well as a faster-growing high-margin revenue mix and operating leverage. Despite considering the higher depreciation costs associated with artificial intelligence (AI), profit growth still outpaced revenue growth. Management reiterated that its AI investment focus is on enhancing and expanding internal services rather than external cloud services. In terms of business, Citi believes that Tencent has established its position in operating evergreen games and cultivating sustained advertising budget spending from advertisers. Although the gap between profit and revenue growth may narrow, there will be no negative operating leverage due to the timing of AI investments
According to the Zhitong Finance APP, Citigroup has released a research report stating that it has raised the target price for Tencent Holdings (00700) from HKD 670, an increase of 3.7% to HKD 695, while maintaining a "Buy" investment rating. Citigroup pointed out that Tencent's gross margin/operating profit/net profit in the first fiscal quarter increased by 20%/18%/22% respectively compared to the same period last year, mainly due to the excellent performance of domestic/international games and online advertising, as well as a faster-growing high-margin revenue mix and operating leverage. Despite considering the higher depreciation costs associated with artificial intelligence (AI), profit growth still outpaced revenue growth. Management reiterated that its AI investment focus is on enhancing and expanding internal services rather than external cloud services.
In terms of business, Citigroup believes that Tencent has established its position in operating evergreen games and nurturing sustained advertising budget spending from advertisers. Although the gap between profit and revenue growth may narrow, there will be no negative operating leverage due to the timing of AI investments
