Tencent Holdings (700 HK) Buy: Core business margin continues to improve

Research evidence excerpt

Tencent Holdings (700 HK) Buy: Core business margin continues to improve

14 May 2026

Tencent Holdings (700 HK) EquitiesInternet Software & Services

Buy: Core business margin continues to improve China

◆ Higher AI spending offset by core business margin expansion

MAINTAIN BUY

◆ Model development focus on better supporting Tencent's

products TARGET PRICE (HKD) PREVIOUS TARGET (HKD)

720.00 750.00◆ Maintain Buy and trim TP to HKD720 (from HKD750)

SHARE PRICE (HKD) UPSIDE/DOWNSIDE

Core business margin stays healthy as AI strategy crystalizes: We are encouraged

to see Tencent print a strong uptick in operating profit margin (OPM) excluding new AI 462.60 +55.6%

product spending. We expect gross profit margin (GPM) improvement to continue due to (as of 13 May 2026)

increased self-developed game contribution in the VAS segment; as for FBS, a MARKET DATA

favourable revenue mix shift in fintech and growing scale of cloud business should help. Market cap (HKDm) 4,217,984 Free float 67%

We keep our group margin assumptions largely unchanged. We expect AI spending in Market cap (USDm) 538,781 BBG 700 HK 3m ADTV (USDm) 1,744 RIC 0700.HK

both capex and opex to trend higher versus 1Q26, offsetting margin upside (details

below). We are less worried about a shortage in CPU and networking chips, as Tencent FINANCIALS AND RATIOS (CNY)

Year to 12/2025a 12/2026e 12/2027e 12/2028e

has long-term business relationships with suppliers given the scale of its core business. HSBC EPS 28.09 30.62 34.59 38.80

After launching the HY3.0 preview, we expect Tencent to stay focused on improving cost HSBC EPS (prev) 28.09 31.37 35.34 39.81

Change (%) 0.0 -2.4 -2.1 -2.5efficiency via co-design process and model capability. Integration of HY into its products Consensus EPS 28.03 30.81 34.35 38.13