Lyon: Lowering the target price of Tencent Holdings (00700) to HK$685 to maintain the “High Confidence Outperforms the Market” rating

The Zhitong Finance App learned that Lyon released a research report stating that the target price of Tencent Holdings (00700) was lowered from HK$740 to HK$685, maintaining the “high confidence to outperform the market” rating. The bank lowered the company's 2026 and 2027 adjusted net profit forecasts by 3% and 7% respectively, mainly considering that accelerated investment in artificial intelligence (AI) may drag down profits in the third quarter, especially investment from model training and WorkBuddy penetration. However, the bank believes that Tencent is speeding up AI applications, and WorkBuddy and “Xiaowei” are expected to become leading enterprises and consumer intelligence, and bring new growth impetus.

Lyon expects Tencent's total revenue for the third quarter to increase 9.4% year over year to RMB 21.1 billion, mainly supported by steady gaming and advertising business and accelerated growth in the cloud business; adjusted profit before interest and tax (EBIT) is expected to drop 2% year over year to 71.3 billion yuan.

By business, the bank expects Tencent's online game revenue to increase 7.3% year on year to 68.2 billion yuan in the third quarter, its game revenue in China up 13% year on year to 48.4 billion yuan, and international game revenue down 4.5% year on year to 19.9 billion yuan.

In terms of advertising business, revenue for the third quarter is expected to increase 19% year over year to 43 billion yuan. Fintech and enterprise services revenue is expected to increase 9.5% year over year to 63.7 billion yuan, with enterprise service revenue expected to increase 25%, mainly driven by cloud business.