Friday, August 8th, 2025

Tencent Holdings 2Q25 Results Preview: Strong Game Pipeline, AI-Powered AdTech Drive Growth – Target Price HK$650

Broker: UOB Kay Hian
Date of Report: 6 August 2025

Tencent Holdings: Accelerating Growth with AI-Powered AdTech and a Robust Game Pipeline

Overview: Tencent Set for Strong Growth in 2025

Tencent Holdings (700 HK), one of the world’s largest comprehensive internet service providers, is poised for robust performance in 2025. With a “BUY” rating maintained and a target price of HK\$650.00 (an implied upside of 16.3%), Tencent remains a prime proxy for investors seeking exposure to China’s resilient online games sector and the accelerating adoption of artificial intelligence (AI).
Key highlights for investors:

  • Share Price: HK\$559.00
  • Market Cap: HK\$5,041.1bn (US\$642.2bn)
  • Major Shareholders: Naspers (24.1%), Ma Huateng (7.7%), Vanguard Group (3.0%)
  • 52-week Range: HK\$560.00 – HK\$349.00

2Q25 Results Preview: Resilient Revenue Growth Driven by Games and Ads

Tencent will release its 2Q25 results on 13 August 2025. Key forecasts and anticipated catalysts include:

  • Revenue Growth: Projected to rise by 11.5% year-on-year (YoY), fueled by resilient domestic and international gaming revenue and robust online advertising.
  • Online Games: Expected 18.4% YoY growth in gaming revenue, reaching RMB57.4bn. This is supported by incremental contributions from new titles, effective monetization, and ongoing updates for evergreen blockbusters such as Honor of Kings and PUBG Mobile (Peacekeeper Elite).
  • Advertising Momentum: AI-powered smart ad delivery has improved targeting precision, increasing click-through rates from a historical 1% to 3% and driving a 19% YoY increase in online marketing revenue.
  • AI Integration: Tencent’s ecosystem leverages AI agents integrated across WeChat (1.3bn+ users), QQ, Tencent Cloud, gaming, social media, and enterprise services.

Gaming Segment: Blockbuster Titles and a Deep Pipeline

Delta Force: Hawk Ops has emerged as a blockbuster, consistently ranking among the top-grossing games. The title reached 38.63 million monthly active users (MAUs) in June and is now the fourth most popular mobile game.
Upcoming Game Releases:

  • Console version of Delta Force
  • Under One Person
  • Valorant Mobile
  • Honor of Kings: World

Deferred revenue surged 15% YoY to RMB122.9bn in 2Q25, indicating strong forward visibility for the segment.
Upcoming Game Launches in 3Q25:

  • Star Resonance: Cross-platform MMORPG launched on 17 July, based on Bandai Namco’s IP.
  • Carbon Island: A simulation game released on 2 July.

Game Pipeline Strength: Tencent enters the second half of 2025 with 94 mobile titles in the pipeline, 54 of which have secured NPPA approvals. Notable titles include:

  • Valorant Mobile: Pre-registrations soared from 20 million to 50 million between June and July.
  • Under One Person: Attracted 18.6 million pre-registrations, launching on 20 September.
  • The Finals: FPS game licensed from Embark Studios, with a beta test starting 8 August.
  • Honor of Kings: World: Open-world flagship title currently in beta.

AI-Powered AdTech: Driving Growth and Efficiency

Tencent’s online marketing revenue is forecast to grow a robust 19% YoY in 2Q25, underpinned by AI-driven smart ad delivery systems. Enhanced targeting efficiency has increased click-through rates and directly boosted ad revenues.
AI Ecosystem Highlights: Tencent showcased 12 specialized vertical AI agents at the 2025 World Artificial Intelligence Conference (WAIC), spanning:

  • Enterprise Services: Qidian Marketing Cloud Agent automates campaign management and analysis.
  • Lifestyle Services: Tencent Maps Travel Planning Agent offers personalized itineraries and local recommendations.
  • Workplace Productivity: CodeBuddy Agent supports automatic code completion, debugging, and intelligent reviews.

Financial Overview: Key Metrics and Outlook

Year to 31 Dec (RMBm) 2023 2024 2025F 2026F 2027F
Net Turnover 609,015 660,257 737,156 794,874 850,848
EBITDA 176,654 221,456 256,959 295,880 322,107
Operating Profit 163,633 208,099 243,002 281,323 306,950
Net Profit (Reported) 111,057 173,882 197,527 232,036 255,233
Net Profit (Adjusted) 153,529 202,512 233,321 263,831 289,266
EPS (Fen) 1,588.8 2,137.8 2,542.3 2,947.7 3,225.5
PE (x) 31.7 23.5 19.8 17.1 15.6
P/B (x) 5.9 4.8 3.7 3.1 2.7
EV/EBITDA (x) 25.7 20.5 17.7 15.4 14.1
Dividend Yield (%) 0.7 1.0 1.1 1.3 1.4
Net Margin (%) 18.2 26.3 26.8 29.2 30.0
Net Debt/(Cash) to Equity (%) 3.1 (13.3) (12.0) (12.6) (13.8)
ROE (%) 14.5 19.5 18.1 17.8 16.8

Segmental SOTP Valuation

Segment 2025F Revenue (RMBm) 2025F Earnings (RMBm) Valuation Method Value (RMB bn) Fair Value/Share (HK\$)
Online Game (PC + Mobile) 233,476 88,489 20x PE 1,770 210
Social Networking (QQ + Weixin VAS) 130,950 49,631 22x PE 1,092 129
Online Ads (Portal + Video + Social) 144,188 49,998 22x PE 1,100 130
Payment 175,217 24,530 15x PE 368 44
Cloud 53,324 5x PS 267 32
Total (after 15% discount) 3,962 650

Profitability, Margins, and Outlook

  • Gross margin forecasted to improve by 1ppt YoY to 54.6% in 2Q25, with operating margin edging up to 37%.
  • Non-GAAP net margin projected to slightly decline to 34.2% due to a high base from equity method gains last year.
  • Key risks: Regulatory uncertainties and potential slowdown in game revenue growth remain watchpoints.

Share Price Catalysts and Valuation

  • Improvement in online advertising, especially from WeChat video accounts
  • Approvals for new game licenses
  • Collaborations with other internet platform operators leveraging the WeChat ecosystem

Tencent is trading at 18.6x 2025F PE, below its historical mean of 25x. The target price of HK\$650.00 implies a valuation of 22x 2025F PE.

Cash Flow and Balance Sheet Highlights

  • Operating cash flow expected to rise to RMB421.6bn in 2025F
  • Capex projected at RMB73.7bn
  • Net cash inflow forecast at RMB211.8bn for 2025F
  • Strong cash position with ending cash & equivalents projected at RMB344.3bn for 2025F

Final Thoughts: Tencent Remains a Top Pick for Growth and Innovation

With a diversified revenue base, leadership in gaming, and ambitious AI-powered adtech integration, Tencent is strategically positioned for continued growth. The company’s robust game pipeline, deep AI ecosystem, and resilient financials offer strong support for its valuation and growth prospects in 2025 and beyond. Investors seeking exposure to China’s digital future should keep a close watch on Tencent’s upcoming results and strategic developments.

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