UBS has released a research report reiterating its "Buy" rating on TENCENT (00700) and maintaining its target price of HK$780.

The bank forecasts that Tencent's revenue for the second quarter of 2026 will increase by 9% year-over-year, with adjusted net profit growing by 4% to RMB 66 billion. A breakdown by business segment shows: 1) Gaming: i) Domestic Market: Revenue growth is expected to rebound to 10% in Q2 (from 6% in Q1), primarily driven by the strong performance of evergreen titles and incremental contributions from newly launched games. ii) International Market: Due to the consolidation of Supercell and Kuro, international gaming revenue growth is anticipated to slow to 8% (from 13% in Q1). 2) Advertising: Year-over-year growth is projected at 18% (compared to 20% in Q1). Despite a higher comparative base leading to a deceleration, growth is expected to remain supported by ongoing upgrades in advertising technology, the Video Accounts platform (which increases traffic and ad inventory), and ad formats with higher effective cost per mille (eCPM). 3) FinTech and Business Services (FBS): Growth is forecast to moderate slightly to 8% (from 9% in Q1), mainly influenced by slower payment growth due to a weaker macroeconomic environment. As chip supply improves, growth in the cloud computing business should accelerate and is expected to strengthen further in the second half of the year.

The bank anticipates gross profit will grow by 11% year-over-year, with a gross margin of 57.9%, primarily benefiting from an optimized business mix shifting towards higher-margin segments. Adjusted operating profit is projected to increase by 7% year-over-year to RMB 74 billion, mainly affected by rising AI-related operational expenses and depreciation costs.