15% YoY topline, 56.9% GPM and RMB69.2bn (18% YoY) adj. OP in 2Q25 all beat consensus/BOCIe. We deem Co. will increasingly benefit from AI demonstrated by sustainable and smooth high quality growth of core business segments and progressive AI commercialisations leveraging various integrated use scenarios within vibrant Weixin ecosystem with diversified AI products and features. Maintain BUY and uplift our TP to HK$705.0, implying 24x/ 20x 2025E/ 2026E adj. PER.
　　Key Factors for Rating
　　AI beneficiary with dedicated executions. We see Co. is building sustainable momentums from its committed AI adoptions, empowerments, integrations and investments. AI facilitates expansive evergreen game portfolios through accelerated content production, improved user experience, marketing efficiency and monetisations. For online ad, AI improves production, analysis, targeting and recommendation capabilities leveraging various use cases and integrated infrastructures with transaction capabilities within vibrant Weixin ecosystem. We deem key segments will increasingly benefit by AI and Co. will progressively monetise AI with strengthened user mindshare.
　　FY2025-27E key forecasts changes: we raise our domestic games by 0-1% and overseas games by 4-6%. Online ad revenue estimates are uplifted by 1- 2% to further reflect increased ROI from AI empowerments. Our raised GP forecasts mainly reflect increased game GP due to revenue mix shift towards in- house titles and channel optimistion and sustainable growth momentum of various high-margin ad formats. We keep our opex estimates unchanged to assume committed AI investments and products’ promotions.
　　2Q25: another clean beat quarter. Total revenue continued to accelerate at 15% YoY to RMB184.5bn, 3%/ 2% beat consensus and BOCIe. Domestic and overseas games revenue jumped 17% YoY and 35% YoY respectively. Evergreen key titles and “Delta Force” Franchise (20m+ monthly average DAUs in July 2025 domestically) facilitated strong domestic games. Supercell games, “PUBG mobile” and newly launched “Dune: awakening” supported international games. Ad revenue continued to be solid at 20% YoY contributed by video accounts (ad revenue grew ~50% YoY), mini programme (ad revenue grew ~50% YoY) and Weixin search (ad revenue grew ~60% YoY). FBS revenue grew 10% YoY, with fintech and business services revenue logging HSD % YoY and accelerated teens % YoY respectively. Notably commercial payment volume resumed to positive YoY. GPM outperformed at 56.9%, beating consensus of 55.2%. Adj. operating profit grew 18% YoY to RMB69.2bn, 3% beat BOCIe. Capex was RMB19.1bn, accounting for 10% of total revenue.
　　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 lift our SOTP TP to HK$705.0 on our updated estimates with corresponding 2025E multiples assigned to each segments derived from corresponding 2025E gross profit growth (20.0x PER for online game, 22.0x PER for online ad, 15.0x PER for fintech & BS, 5x PSR for cloud) and latest subsidiaries and investments’ valuation.