Jefferies: Lowering Tencent's (00700) Target Price to HK$711 to Maintain “Buy” Rating

The Zhitong Finance App learned that Jefferies released a research report stating that it will reduce the target price of Tencent (00700) by about 5% from HK$750 to HK$711 to reflect the latest business and industry trends and sector valuation changes. Jefferies expects that Tencent will increase its investment in the field of artificial intelligence (AI) while becoming more cautious about advertising and fintech businesses, but it is still optimistic about its multiple growth drivers and AI development strategies, and maintains a “buy” rating.

Jefferies generally kept Tencent's third-quarter revenue forecast unchanged. Revenue is expected to increase 8.6% year over year to RMB 209 billion, slightly lower than the 9% increase expected by the market. However, the bank raised Tencent's AI spending estimates for the second half of this year and 2027. Relevant investments include computing power, model and application development, and the use of AI to improve the efficiency of existing businesses.

Meanwhile, due to uncertain macroeconomic factors, Jefferies makes conservative predictions about Tencent's advertising and fintech services. The bank estimates that marketing service revenue for the third quarter increased 18% year over year, slightly lower than its original and market expectations of 19%; revenue from fintech and corporate services is expected to grow 8%, lower than the forecast of 9.2%.

In terms of gaming business, Jefferies expects online game revenue to increase 8% year over year, in line with market expectations. Among them, international games are expected to drop by about 3% year on year, mainly due to the appreciation of the RMB, the high base formed by the launch of buyout games in the same period last year, and the rapidly growing Miniclip in-app advertising revenue being included in marketing services rather than international game revenue.

Based on the increase in AI investment and weakening of some business growth forecasts, in non-IFRS, Jefferies expects operating profit to drop by about 4% year-on-year to 69.6 billion yuan; profit also falls 8% to 64.9 billion yuan.

Jefferies said that the market will focus on the following 12 categories: the latest developments in AI strategies and market feedback on WorkBuddy's latest development trends; the market also pays attention to user feedback from WeChat AI tests; the competitive landscape of AI models and market feedback after HY4's official launch; local online game strategies, including revitalizing existing games, such as “Wang Zhe Rongyao” and PKE, and the latest developments in emerging game IPs; international game business outlook; advertising business outlook, and trends in different industry categories; fintech revenue trends, including payment and non-payment businesses; Cloud business revenue outlook; capital expenditure and free cash flow (FCF) trends; operating expenses trends; AI commercialization opportunities and latest developments in different business segments; profit growth in the second half of 2026 and 2027; return on shareholder capital.