The analyst rating for TENCENT (00700.HK) was reiterated as "Buy" by Daiwa due to several positive factors highlighted in their report. The key reasons for this rating include:
1. Solid 4Q25 Results: TENCENT delivered strong quarterly results, particularly in its international gaming and cloud business, which exceeded market expectations.
2. Gross Profit Margin Expansion: The company's overall gross profit margin increased to 56%, attributed to improved business mix and operating leverage, despite higher investments in AI.
3. Increased AI Investments: TENCENT significantly ramped up its AI investments, which are beginning to enhance its core businesses (gaming, advertising, cloud, and fintech) by improving user engagement and monetization capabilities.
4. Revised EPS Forecasts: Due to the higher gross profit margin, Daiwa raised its earnings per share (EPS) forecasts for 2026 and 2027 by 4%.
5. Target Price Maintenance: The target price was maintained at $725, reflecting a projected price-to-earnings (PE) ratio of 20.1x for 2026.
These factors collectively support a positive outlook for TENCENT, justifying the "Buy" rating.
