Tencent Holdings Limited: Strong Buy Rating on Robust Profitability and Growth Outlook

In a report released today, Saiyi HE from CMB International Securities maintained a Buy rating on Tencent Holdings Limited (TCTZF – Research Report), with a price target of HK$480.00.

Saiyi HE has given his Buy rating due to a combination of factors, including Tencent Holdings Limited’s solid first-quarter performance and expectations for continued growth. The company reported a significant increase in non-IFRS net income, outperforming both CMB International Securities’ and consensus estimates, which can be attributed to a successful quality growth strategy leading to gross profit margin (GPM) expansion. The forecast for GPM to further expand, driven by high-margin revenue streams such as Video Accounts and Mini Games, suggests a robust profitability outlook that supports shareholder returns. HE has thus increased the earnings forecast for the coming years and raised the target price, reflecting confidence in Tencent’s financial trajectory.
Additionally, the recovery in game gross receipts, particularly in international markets, alongside strong online advertising revenue growth, underpins the optimism for Tencent’s future performance. The substantial year-over-year growth in advertising driven by Weixin ad properties and the solid momentum in business services revenue add to the positive outlook. With Tencent’s overall GPM showing significant improvement and the valuation remaining attractive, HE’s recommendation aligns with the expectation of sustainable growth and profitability, providing a strong rationale for the Buy rating on Tencent’s stock.

In another report released today, Bernstein also assigned a Buy rating to the stock with a HK$455.00 price target.

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Tencent Holdings Limited (TCTZF) Company Description:

Tencent is a Chinese Internet giant with businesses and investments in a wide variety of Internet services and contents. Major services include communication and social networking (Weixin/Weixin and QQ), online PC and mobile games, content (news, videos, music, comics, and literature), utilities (email, app store, mobile security, and mobile browser), cloud services, and financial technology. Tenpay in Weixin/Weixin and QQ is a payment solution that enables closed-loop transactions in Tencent’s ecosystems and has been adopted by many third-party partners and offline merchants. Tencent has an aggregate monthly active user base of less than 600 million for QQ and over 1.2 billion for Weixin/Weixin.