Tencent announced 2Q25 financial results: total revenue/non-IFRS operating income grew by 15%/18% YoY to RMB184.5/69.2bn, 3%/4% ahead of Bloomberg consensus estimate, driven by solid growth across business lines.
　　Higher-margin games and marketing businesses continued to maintain strong momentum (+22% and 20% YoY respectively), driving quality growth and further GPM expansion (+3.6ppts YoY). We lift our FY25-27E non-IFRS earnings forecast by 1-4% to factor in the stronger-than-expected games & marketing revenue growth and continuous execution of quality growth strategy. We raise our SOTP-derived target price to HK$705.0 (previous: HK$660.0). We are positive on Tencent’s short-term earnings visibility, supported by its strong competitive moat, and long-term opportunities in AI. Maintain BUY.
　　Solid games pipeline and evergreen games ease concerns on tough
　　comparison. Games revenue grew by 22% YoY to RMB59.2bn in 2Q25 and was 5% ahead of consensus estimate: 1) domestic games revenue increased by 17% YoY to RMB40.4bn in 2Q25, mainly driven by Delta Force and growth of evergreen games. Delta Force surpassed 20mn average DAUs and ranked among the top 3 games by gross receipts domestically in July 2025. 2) International games revenue grew by 35% YoY to RMB18.8bn in 2Q25, fuelled by the growth of Supercell’s games & PUBG Mobile, and the launch of Dune: Awakening. Looking into 2H25, we expect the solid performance of evergreen games and the launch of highly-anticipated titles like Valorant Mobile (19 Aug) to alleviate concerns on the high-base effect.
　　Long growth runway for marketing business supported by AI.
　　Marketing services revenue was up by 20% YoY to RMB35.8bn in 2Q25 (2% ahead of consensus), primarily thanks to AI empowerment and the development of Weixin transaction ecosystem. The marketing revenue from Video Accounts/Mini Programs/Weixin Search grew by c.50%/50%/60% YoY in 2Q25. Tencent expanded its AI applications in ad creation, placement and recommendation, which led to further improvement in conversions and ROIs. We are upbeat on the long runway for marketing business, driven by the AI-enhanced ad conversion and the increasing ad load.
　　FBS revenue growth accelerated. Fintech and Business Services (FBS) revenue grew by 10% YoY to RMB55.5bn in 2Q25: 1) fintech revenue growth accelerated to high-single-digit % YoY in 2Q25, thanks to the recovery of commercial payment volume and growth of consumer loan and wealth management services; 2) business services revenue growth also accelerated to teens % YoY, mainly driven by the growth of AI cloud and e- commerce services. GPM of FBS expanded by 4.5ppts YoY and 1.9ppts QoQ to 52.1% in 2Q25 due to favourable revenue mix shift and improved efficiency.
　　GPM expansion trend continues. Non-IFRS OPM expanded by 1.3ppts YoY to 37.5% in 2Q25. 1H25 capex grew by 102% YoY to RMB46.6bn (13% of total revenue), and the company will continue to invest in AI infra and marketing to support its AI development. Despite AI investment and increased depreciation, we still expect non-IFRS NPM to rise by c.1/1ppt YoY in FY25/26E, thanks to the operating leverage and AI empowerment.