11% YoY topline led consensus/ BOCIe by 2% primarily contributed by outperformed games (both domestic and overseas) and online ad.
　　Despite underperformed GPM and OPM, 32.1% adj. NPM also beat consensus mainly due to shared profit of associate & JV. We deem Co.’s accelerated AI adoption, integration and empowerment into their core various business scenarios ignite growth multiplier for existing key businesses and unlock L-T monetisation potentials given their engaged users, integrated infrastructures and various contents across formats. Reiterate BUY and raised SOTP TP to HK$620.
　　Key Factors for Rating
　　AI as a multiplier for existing businesses unlocks L-T monetisation potentials on expanded scenarios with engaged large user base: being the largest content provider in China’s internet platforms across diversified formats (game, video, music and literature), Tencent offers the richest content in various form, as well as the most effective channel for content exchange and provisioning. Adopting various AI technology from proprietary foundation model (HunYuan) to multi-modal echo system, the Company develops multiple tools to enhance content generation (image-video generation, coding automation) and facilitation of content exchange by incorporating AI tools in various Apps.
　　With calculating power added and models/Apps refined, we expect continued efficiency gain with steady margin improvement as immediate results. Also, we expect AI empowerments will gradually accelerate growth momentum for key ads and game businesses and further unlock monetisation opportunities with expanded consumption scenarios on engaged user activities and comprehensive infrastructures within Tencent ecosystem in the long run.
　　Key forecasts change: we raise our FY2025-26E VAS revenue forecasts by 3-4% to mainly reflect 7-8% domestic game increase due to the performances of solid evergreen titles and new game estimations on our latest pipelines. Ad revenue forecasts are also raised by 3-4% to reflect positive impacts from AI empowerments. We nudge down our fintech estimate by 2% to reflect our conservative view on offline commercial activities rebound, partially offset by our raised cloud services forecasts. We raise our GP forecasts by 2-4% to mainly reflect sustained revenue mix shift and potential game channel fee optimisation.
　　We increase our opex assumptions, especially R&D and S&M, to reflect Co.’s stepped up AI-related investments.
　　4Q24: Topline beat; Earnings beat on associate & JV profit despite underperformed GPM and OPM; HK$121bn+ 2025 shareholder return package. Total revenue accelerated 11% YoY to RMB172.4bn, 2% above consensus and BOCIe. Outperformed domestic and overseas VAS game revenue grew faster at 23% YoY and 15% YoY respectively, driven by both evergreen titles (14 in 2024, increased from 12 in 2023) and new games contributions. Solid music, mini-game service fees and app-based game virtual item sales continued to drive 6% YoY social revenue despite weak streaming.
　　Outperformed ads revenue displayed 17% YoY to RMB35.0bn mainly contributed by healthy growth momentum of video accounts (ad revenue continued to log 60%+ YoY), mini programme and weixin search. FBS revenue remained soft at 3% YoY to RMB56.1bn, within which wealth management, consumer loan, eC tech fees and WeCom experienced YoY growth while commercial payment revenue was flattish YoY. 30% YoY Non-IFRS net profit to RMB55.3bn beat streets’ expectation/ BOCIe by 4%/ 2% respectively despite underperformed 29.9% OPM against consensus/ BOCIe, mainly thanks to RMB7.7bn shared profit of associate and JV. Co declared 2025 shareholder return package consisting of HK$41b dividends and over HK$80bn buyback. Co. guides 2025 capex to account for low teens % of revenue (vs. 4% in 2023 and 12% in 2024).
　　Key Risks for Rating
　　Downside risks: 1) regulations on games, fintech, online ad, streaming, personal data, taxation, etc.; 2) intensified competition for key segments; 3) weaker-than-expected macro; 4) destructive investments; 5) accelerated share divestment from main shareholder.
　　Valuation
　　Reiterate BUY and lifted our SOTP TP to HK$620.0 based on our updated estimations with corresponding 2025E multiples assigned to each segments (18.0x PER for online game, 20.0x PER for online ad, 15.0x PER for fintech & BS, 6x PSR for cloud) and latest subsidiaries and investments’ valuation.