CICC has released a research report stating that TENCENT's (00700) first-quarter Non-IFRS net profit increased by 11% year-on-year, meeting market expectations. Affected by deferred revenue recognition, first-quarter revenue grew by 9% year-on-year, which was below market expectations. CICC maintains its revenue and Non-IFRS net profit forecasts for Tencent for the current and next year. The firm reaffirms an "Outperform" rating and a target price of HK$666, corresponding to a projected Non-IFRS price-to-earnings ratio of 20 times for this year.

The report indicates that Tencent's first-quarter gaming business showed considerable growth in revenue, with evergreen titles reaching new highs. The later timing of the Chinese New Year this year led to the deferral of some gaming revenue and associated payouts to subsequent quarters for recognition. The firm anticipates domestic gaming revenue to increase by 12% year-on-year in the second quarter, while overseas gaming revenue is expected to rise by 10%.

CICC noted that Tencent's first-quarter advertising revenue accelerated, growing by 20% year-on-year, and projects second-quarter advertising revenue to increase by 17% year-on-year. The firm estimates that first-quarter financial services revenue grew by 7% year-on-year, exceeding prior expectations, driven by improvements in commercial payment volume and pricing, as well as steady growth in wealth management services. First-quarter enterprise services revenue increased by 20% year-on-year, benefiting from both volume and price increases in cloud services. The firm forecasts second-quarter enterprise services revenue to grow by 25% year-on-year, with combined financial and enterprise services revenue expected to increase by 10% year-on-year.

The report suggests that Tencent's investments in AI are proactive and manageable. At the end of April, Tencent open-sourced and released the Hunyuan 3.0 preview Large Language Model (LLM), which balances practicality and cost-effectiveness. It has been deployed across 131 internal products for collaborative iteration, with plans to advance toward larger parameter models. Management views WeChat, QQ, and WeCom as natural control interfaces for Agentic AI. In the future, converting mini-program code into AI Skills could help build a differentiated ecosystem barrier. Excluding the impact of new AI products, first-quarter Non-IFRS operating profit increased by 17% year-on-year, indicating robust profitability in core businesses and providing ample cash flow to support AI investments. The firm expects Tencent's second-quarter adjusted operating profit and adjusted net profit to grow by 7% and 9% year-on-year, respectively.