UBS: Maintaining Tencent's (00700) Target Price of HK$780 and Reiterates “Buy” Rating

The Zhitong Finance App learned that UBS released a research report stating that it maintains Tencent's (00700) target price of HK$780 and reaffirms the “buy” rating.

The bank expects Tencent's revenue for the second quarter of 2026 to increase 9% year-on-year, and adjusted net profit to increase 4% to RMB 66 billion. By business segment: 1) Gaming: i) Domestic Market: The bank expects revenue growth to rise back to 10% in the second quarter (6% in the first quarter), mainly due to the strong performance of Evergreen Games and the incremental contributions of newly launched games. ii) International market: In light of the merger between Supercell and Kuro, the bank expects revenue growth in the international market to slow to 8% (13% in the first quarter). 2) Advertising: It is expected to increase 18% year-on-year (20% in the first quarter). Despite a high base, the growth rate has slowed, but ad technology upgrades, video accounts (increasing traffic and ad load), and higher effective cost per thousand impressions (eCPM) advertising formats will continue to support growth. 3) Fintech (FBS): The growth rate is expected to slow slightly to 8% (9% in the first quarter), mainly affected by the slowdown in payments growth due to weak macroeconomics. As chip supply improves, the growth of the cloud computing business should accelerate, and is expected to increase further in the second half of the year.

The bank expects gross margin to increase 11% year-on-year (gross margin was 57.9%), mainly due to the optimization of the business structure to high-margin businesses; adjusted turnover increased 7% year over year to 74 billion yuan, mainly affected by the increase in AI operating expenses and depreciation.