Key Takeaways:
Citi Research trimmed its target price for Tencent Holdings to $783 from $787 ahead of its first-quarter results, forecasting solid growth in the company’s core gaming and advertising segments.
The bank reiterated its "Buy" rating, considering the current valuation attractive and citing future growth from AI developments like Hunyuan 3.0 and WeChat AI agents.
Citi projects Tencent's total revenue for the first quarter will increase 9.9 percent year-over-year to RMB197.9 billion. Non-GAAP net profit is expected to climb 9.7 percent to RMB67.2 billion, which is broadly in line with market consensus. The forecast assumes a strong Lunar New Year season will boost online game revenue by 11.7 percent to RMB66.4 billion.
The minor price target reduction suggests a slight moderation in expectations, even as the overall outlook remains positive. Investors are watching to see if the official results, expected May 13, can validate the double-digit growth projections in domestic and international gaming.
The bank's forecast breaks down the gaming segment's growth, predicting a 10 percent rise in domestic game revenue and a 16 percent increase for international games year-over-year. This performance is attributed to the stable revenue from Tencent's evergreen titles and seasonal holiday spending.
While the price target saw a marginal cut, Citi's report points to artificial intelligence as a key long-term value driver. The bank believes the development of its Hunyuan 3.0 large model and the integration of AI agents into WeChat will help solidify Tencent's strategic position in the AI sector.
The report signals that while near-term growth is stable, the focus is shifting towards new AI initiatives to justify a higher valuation. Tencent's ability to monetize these AI products will be a key catalyst for the stock throughout the remainder of the year.
This article is for informational purposes only and does not constitute investment advice.
