Introduction to this report:
On May 30, 2024, the “Tencent Yuanbao” app was launched, and Tencent officially entered the C-terminal A1 Assistant Lingcheng. The mixed-element model has been newly upgraded, and features such as superimposed high-quality content ecosystem support, and Yuanbao's A1 search are excellent.
Key points of investment:
The mixed-element model has been fully upgraded to improve the ability to drive ingots. The large mixed-element model has a parameter scale of 1 trillion, pre-trained corpus of up to 7 trillion tokens, and uses the MoE architecture. Wensheng Chart uses the DIT architecture. The large mixed-element model has a 256k extra-long context window and can handle extra-long text of over 380,000 characters. Supported by the mixed element model, Tencent Yuanbao supports various input formats such as images/files/voices, and can parse up to 10 PDF/word/txt files at once.
The advantages of the content ecosystem are remarkable, and the Yuanbao AI search experience is excellent. Tencent Yuanbao is connected to WeChat Search and Sogou Search, and enhanced through AI search to ensure the high timeliness of content. In addition, Yuanbao can also cite and recommend Tencent ecological content such as WeChat accounts. This is a data source that is difficult to obtain for many similar products. High-quality public account content helps improve the quality of questions and answers, and recommended reading makes it easy for users to quickly trace and extend reading.
Support users to customize agents and actively lay out the agent ecosystem. Tencent Yuanbao supports users to customize agents. Users can set roles for agents, or let AI automatically generate information related to agents, and can also reproduce the user's voice. In addition, Tencent has also set up a one-stop smart creation and distribution platform for developers and enterprises - Tencent Elements. The platform provides a rich plug-in and knowledge base, supports users to customize agents, and can distribute agents to Tencent's ecosystem channels. However, at present, Yuanbao is not fully connected to Tencent Elements, and it is expected that it will provide more interesting feature options after connecting.
Profit forecasting and valuation: Optimistic AI capabilities will empower and improve the efficiency of the company's various businesses. At the same time, the high-quality content ecosystem will also help enhance the experience of AI products such as Tencent Yuanbao. It is believed that the company's high-quality ecosystem and AI product capabilities will mutually promote each other and form a positive cycle. The profit forecast for 2024-2025 remains unchanged, and the “Overweight” rating is maintained. The company's 2024/2025 non-IFRS net profit is estimated to be $1962/221.9 billion, and is currently trading at 16.4x/14.5x 2024e/2025e non-IFRS PE. The target price was HK$459, corresponding to 20x/17.7x PE, with 21.6% upside compared to the current stock price.
Risk warning: Consumption recovery falls short of expectations: regulations are getting stricter; progress in AI technology and applications falls short of expectations; new game launches fall short of expectations