CITIC Securities: Raises Tencent Holdings Limited's target price to HKD 700, maintains "Buy" rating
CITIC Securities raised the target price for Tencent Holdings to HKD 700, maintaining a "Buy" rating. It is expected that AI agents, advertising, and the commercialization of AI products will drive Tencent's revenue and valuation growth. Tencent's second-quarter performance exceeded expectations, with revenue increasing by 15% year-on-year and non-IFRS net profit growing by 10%. Despite being affected by chip supply constraints, capital expenditure was RMB 19.1 billion, still in line with the company's guidance. The forecast for capital expenditure for the fiscal years 2025/2026 remains at RMB 97 billion and RMB 107 billion
According to Zhitong Finance APP, China Merchants Securities released a research report stating that Tencent Holdings (00700) is currently valued at 18 times/16 times price-to-earnings ratio for the fiscal years 2025/2026, which is at the historical average level, compared to 17 times/15 times for its Chinese peers and 25 times/23 times for its American peers. With its strong social network moat and AI technology, it is expected that AI agents, advertising, AI product commercialization, and AI-driven margin expansion will bring potential earnings and valuation growth opportunities for Tencent. The rating is maintained at "Overweight," with the target price raised from HKD 670 to HKD 700.
The report indicates that Tencent's second-quarter performance exceeded expectations, with revenue growing 15% year-on-year, surpassing expectations by 3%; non-IFRS net profit increased by 10% year-on-year, also exceeding expectations by 3%, mainly benefiting from margin improvements across various business segments. All business lines demonstrated strong growth momentum empowered by AI, leading to an upward revision of the earnings forecast for the fiscal years 2025/2026.
The report states that due to chip supply constraints, Tencent's capital expenditure in the second quarter was RMB 19.1 billion, a 30% quarter-on-quarter decline, but still in line with the company's previous guidance of maintaining capital expenditure intensity at a low double-digit percentage of revenue for the fiscal year 2025. The firm maintains its forecast for capital expenditures of RMB 97 billion and RMB 107 billion for the fiscal years 2025/2026, to continuously support the company's internal business upgrades and growth prospects
