Soochow released a research report indicating that it expects TENCENT (00700) to have adjusted Net income of 217.4/240.6/265.3 billion yuan for 2024-2026, corresponding to a PE (Non-IFRS) of 17/15/14 times for 2024-2026, maintaining a "Buy" rating. The bank believes that one of TENCENT's advantages in AI is its rich application ecosystem, which on one hand provides an efficient traffic entry point for the company's AI products to reach users, and on the other hand enhances the practicality of the company's AI products, accelerating the landing and commercialization of AI products.

The main viewpoints of soochow securities are as follows:

Development history: "Industry Practical" Global Strategy, emphasizing both large models and applications.

The company has been laying out AI since 2012, with AI teams established in each business unit, oriented towards vertical application landing. In 2018, it clarified its AI strategy development direction, upgrading from a focus on application landing to general AI research. In March 2023, at the annual performance briefing, it stated that "AI technology is expected to become one of the important growth multipliers for enterprises in the medium to long term". In September 2023, the general large language model - the mixed element large model was officially launched and made accessible through TENCENT Cloud. In May 2024, the one-stop AI intelligent agent creation and distribution platform "TENCENT Yuqi" and the intelligent assistant APP "TENCENT Yuanbao" based on the mixed element large model were launched. The company is oriented towards application landing and industry practicality, increasing its investment in foundational models, forming a layout of large models + tools + applications.

Product layout: A diverse application ecosystem is expected to yield multiplier effects. The company's AI layout covers both B and C ends, where the C end includes: 1) existing applications that have integrated AI features, 2) AI native applications; the B end connects to production scenarios through the model + Cloud Computing Service + PaaS model.

On the model side: According to the SuperCLUE "Chinese large model benchmark evaluation report August 2024", TENCENT's mixed element ranked first in eight of the eleven capability evaluations in core tasks domestically.

Application side - Existing applications/scenarios:

1) According to TENCENT's public account, as of November 2024, nearly 700 businesses and scenarios within TENCENT have integrated the mixed element large model, with the AI functions of some applications having already started commercialization. 2) Advertising: The advertising deployment system will be upgraded to version 3.0 in 2024, where AI understands advertisements, businesses, and audiences better, and a one-stop AI advertising creative platform "Miaosi" will also be launched to optimize the advertising deployment process, with commercialization potential expected to be gradually released. 3) Gaming: Focused on decision-making AI and generative AI, covering the entire lifecycle of game development, publishing, and Operation, expecting AI innovative gameplay to land.

Application side - Native AI:

1) TENCENT Yuanbao: Launching in May 2024, offering functions such as AI search, AI long text reading, AI writing, and creative avatars, with an upgrade to 2.0 in November 2024, linking with TENCENT document and other ecological products. 2) ima.copilot: Differentiated AI intelligent workstation, linking with the company's ecological products, providing AI search, AI knowledge base, and AI note-taking functions. 3) TENCENT Yuanqi: AIAgent platform, supporting full-domain distribution to enhance the efficiency and practicality of AI agents. 4) AI tools: Covering text, music, images, videos, etc.

Risk warning: Risk of AI progress falling short of expectations, increased industry competition risk, macroeconomic recovery not meeting expectations, and stricter industry regulation risks.