The company's recent situation
On May 17, 2024, the Tencent Cloud Generative AI Industry Application Summit was held in Beijing to announce a series of developments in large-scale model development and application products.
reviews
Mixed-element generic big model upgrade. 1) Hybrid is the first in China to adopt a hybrid expert model (MoE) structure, and the overall performance of the upgraded model is 50% higher than the previous generation; 2) It provides various parameter scale models - trillion parameter hunyuan-pro, 100 billion parameter hunyuan-standard, 10 billion parameter hunyuan-lite, etc., which are now fully open to enterprises and individual developers through Tencent Cloud. Among them, the hunyuan-standard 256k long text model can process ultra-long text of more than 380,000 characters at a time; 3) More Modal domain model iteration. For example, the raw image field is upgraded to the same DIT architecture as Sora, the raw video field already supports 16s video generation, and the raw 3D field mixed-element upgrade to a single image only takes 30 seconds to generate a 3D model. We believe that Tencent's mixed element initially has a large model capability framework. Although the domestic big model may have a certain technical gap compared to overseas, the big model field is currently undergoing a rapid iteration cycle and has not entered a decisive moment. Domestic Internet leaders have adopted a follow-up strategy or are the better choice.
Tencent test agent. Currently, Tencent has experimented with agents in many products: applications such as WeChat Reading have introduced new features such as AI Questionnaire and AI Outline; Tencent Conference has launched an AI assistant that can instantly answer questions inside and outside of the conference. In addition, there are general-purpose agents such as Tencent components. Users can not only create exclusive AI agents on the components, but also distribute agents to QQ, WeChat customer service, Tencent Cloud, etc. with one click based on Tencent's social channel advantages, making full use of Tencent's internal connectivity attributes. We believe that Agent is expected to become a native application in the future AI era. Tencent has strong social barriers and user traffic entrances in China, and advance layout may have a certain first-mover advantage.
Follow up the progress of ToB and ToC AI. The first is the ToC field. In addition to the agent layout, the company also announced that it will release the ToC big model app “Yuanbao” on May 30; secondly, in the ToB field, Tencent Cloud will launch a large model native tool chain, which includes three PaaS products — “Big Model Knowledge Engine,” “Big Model Image Creation Engine,” and “Big Model Video Creation Engine,” focusing on customer usage scenarios to improve its efficiency. We believe that AI implementation scenarios may be an important part of future AI competition. Tencent's forward-looking perspective makes corresponding actions for C- and B-side users to help them accumulate corresponding data assets and understand user behavior, so as to enhance their ability to implement AI products.
Profit forecasting and valuation
We maintain our 2024/2025 revenue and profit forecasts unchanged. Maintaining the “outperforming industry” rating and target price of HK$468, corresponding to 20.0x/17.5x 2024e/2025e non-IFRS P/E, with 18.5% upside compared to the current stock price. The current share price is trading at 16.9x/14.8x 2024e/2025e Non-IFRS P/E.
risks
The development of AI technology fell short of expectations; cloud computing business costs exceeded expectations; AI commercialization fell short of expectations.