Daiwa Capital Markets: Raises Tencent Holdings target price to HKD 680, reiterates "Buy" rating

Zhitong
2026.07.10 06:06

Daiwa Capital Markets released a research report, raising the target price for Tencent Holdings from HKD 670 to HKD 680, reiterating a "Buy" rating. The report pointed out that the launch of Tencent's mixed Yuan Hy3 model has made significant progress, with improved user acceptance. It is expected that revenue in the second quarter of 2026 will increase by 11.8% year-on-year to RMB 206.2 billion, and net profit will grow by 10.8% to RMB 69.9 billion. Among them, advertising revenue is expected to increase by 18.8%, and revenue from financial technology and enterprise services is expected to grow by 9.3%

According to Zhitong Finance APP, Daiwa Capital Markets has released a research report stating that it has raised the target price for Tencent Holdings (00700) from HKD 670 to HKD 680, reiterating a "Buy" rating.

The official launch of Tencent's Mix Yuan Hy3 marks a significant advancement in its foundational model capabilities, thanks to stronger benchmark performance, upgrades in coding and agent capabilities, and competitive pricing. The extensive deployment within the Tencent ecosystem helps gather real-world usage feedback and accelerates model iteration. Initial positive momentum, including a 20-fold increase in tokens and a 6-fold increase in users voluntarily choosing Hy3, indicates that user acceptance is rising, with stronger relevance in AI application cases focused on enterprise productivity and workflows.

Daiwa Capital Markets predicts that Tencent's revenue in the second quarter of 2026 will grow by 11.8% year-on-year to RMB 206.2 billion, with non-GAAP net profit expected to grow by 10.8% year-on-year to RMB 69.9 billion, resulting in a net profit margin of 33.9%. By business segment, the firm expects online gaming revenue to grow by 13.7% year-on-year to RMB 67.3 billion, driven by a year-on-year increase of 11.7% in domestic games and 18% in international games.

Advertising revenue is expected to grow by 18.8% year-on-year to RMB 42.5 billion, while financial technology and enterprise services (FBS) revenue is forecasted to grow by 9.3% year-on-year to RMB 62.7 billion, supported by a year-on-year increase of 22.0% in cloud revenue and 7.0% in financial technology. The firm expects gross profit and operating profit to grow by 11.3% and 15.5% year-on-year, reaching RMB 116.9 billion and RMB 69.4 billion, respectively. Overall, the firm expects the performance in the second quarter of 2026 to be roughly in line with expectations, with potential upside in online gaming possibly offset by a slowdown in FBS growth.

Daiwa Capital Markets stated that Hy3 significantly enhances the reliability of AI agents. The most significant breakthrough is that Hy3 can go beyond simple Q&A to complete complex multi-step tasks. Hy3's agent capabilities can now handle multi-step tasks, generating PPT, Word, Excel, PDF, and HTML files directly based on natural language prompts in the tokens. Its hallucination rate has decreased from 12.5% to 5.4%, making the output results more trustworthy for enterprise applications. Additionally, enhanced coding and agent capabilities improve performance in complex workflows, including software development, financial modeling, and front-end design. The firm believes this is an early sign that Tencent is strengthening its foundational model competitiveness and narrowing the gap with leading frontier models

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