Morgan Stanley has reiterated Tencent Holdings (00700.HK) as its top sector pick, maintaining an "overweight" rating. The firm cited Tencent's resilient revenue and profit growth trajectory alongside limited exposure to ongoing competitive pressures. Morgan Stanley raised its target price by 3% to HK$650 from HK$630 based on sum-of-the-parts valuation, representing 18 times projected 2026 earnings versus the current 15 times multiple.
Analysts expect robust second-quarter performance, forecasting 11% year-over-year revenue growth and 14% non-IFRS operating profit expansion. This optimism stems from solid momentum in gaming and advertising segments, complemented by a modest recovery in Fintech and Business Services (FBS).
While increased artificial intelligence investments may narrow operating profit leverage, Morgan Stanley projects continued margin expansion. The upward price target adjustment reflects confidence in Tencent's ability to sustain growth despite heightened AI expenditure.
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