China Merchants Securities released a research report stating that Tencent Holdings (00700) is currently valued at 18x/16x P/E ratio for fiscal years 2025/2026, which is at historical average levels, compared to Chinese peers at 17x/15x and U.S. peers at 25x/23x. With its strong social network moat and AI technology, the firm expects AI agents, advertising, AI product commercialization, and AI-driven margin expansion to bring potential revenue and valuation upside opportunities for Tencent. The firm maintains a "Buy" rating, optimistic about the company's unique market position, and raises the target price from HK$670 to HK$700.

The firm noted that Tencent's second-quarter results exceeded expectations, with revenue growing 15% year-over-year, beating expectations by 3%. Non-IFRS net profit increased 10% year-over-year, also exceeding expectations by 3%, primarily benefiting from margin improvements across all business segments. All business lines demonstrated strong growth momentum under AI empowerment, prompting the firm to raise its earnings forecasts for fiscal years 2025/2026.

The report indicated that affected by chip supply constraints, Tencent's second-quarter capital expenditure was RMB19.1 billion, down 30% quarter-over-quarter, but still aligned with the company's previous guidance of maintaining capex intensity at low double-digit percentage of revenue for fiscal year 2025. The firm maintains its capex forecasts of RMB97 billion and RMB107 billion for fiscal years 2025/2026 respectively, to continuously support the company's internal business upgrades and growth prospects.