# Tencent Holdings (HKEX:0700)

As of Sun 8 Nov 2026 12:00 UTC (weekly snapshot). Full report: https://standard-equity.report/HKEX/0700

Price HK$419.80 (HKD), market cap HK$3.776T, Communication Services - Internet Content & Information.

## Valuation

- SE Reference Value (expected value, DCF): HK$916.18 (central 50% range HK$751.51 to HK$1,142.03), +118% against the price; range width moderate
- SE Grade: 1 of 3 (Value 3, Quality 3, Moat 2)
- Consensus Rating: Strong Buy (Strong buy 32, Buy 7, Hold 3, Sell 0, Strong sell 1)
- Consensus Price (mean): HK$663.77, +58% against the price

## Key metrics

Financials in CNY. Peer percentile: 100 = best in the peer group.

| Metric | Now | 5Y median | 10Y median | Peers |
|---|---|---|---|---|
| Revenue | ¥788.5B | CAGR 9.3% | CAGR 19.4% | P87 |
| Revenue growth | 12.0% | 9.8% | 16.2% | P30 |
| Gross margin | 56.7% | 48.1% | 47.1% | P33 |
| Operating margin | 33.3% | 26.8% | 26.4% | P80 |
| Net margin | 29.9% | 29.9% | 29.7% | P87 |
| FCF yield | 5.1% | 4.9% | 4.1% | P80 |
| FCF margin | 21.3% | 28.7% | 31.3% | P47 |
| FCF / net income | 0.71x | 0.96x | 1.08x | P26 |
| ROIC | 17.7% | 13.9% | 17.6% | P63 |
| ROE | 20.9% | 21.8% | 24.7% | P48 |
| ROA | 10.9% | 11.0% | 11.0% | P55 |
| EPS | ¥25.73 | CAGR 8.0% | CAGR 21.1% | - |
| EPS growth | 14.4% | 17.9% | 18.1% | P40 |
| Book value per share | ¥124.10 | CAGR 11.3% | CAGR 23.7% | - |
| FCF per share | ¥18.39 | CAGR 7.1% | CAGR 16.2% | - |
| Dividend per share | ¥4.76 | CAGR 28.7% | CAGR 27.2% | - |
| Dividend yield | 1.3% | 1.0% | 0.4% | P64 |
| Payout ratio (FY2025) | 19.7% | 19.7% | 11.1% | P45 |
| Diluted shares | 8,994.8M | CAGR -0.9% | CAGR -0.3% | P62 |
| Buyback yield | 1.0% | 0.9% | -0.3% | P62 |
| Debt/equity | 0.39x | 0.37x | 0.44x | P47 |
| Enterprise value | ¥3.349T | CAGR 1.7% | CAGR 13.4% | P90 |
| Long-term debt | ¥380.0B | CAGR 7.1% | CAGR 15.7% | P87 |

## Company Note (Q2 2026)

Written by AI from the data above.

**Tencent's second quarter showed** the core franchise compounding while AI spending ramps: revenue rose 11.0% to ¥204.8B, faster than the first quarter, yet diluted EPS gained only 1.8%. Management said non-IFRS operating profit, excluding new AI products, grew 19%. Domestic games were driven by Delta Force, Valorant PC, Valorant Mobile and Roco Kingdom: World, and marketing services by higher eCPM and impressions. With revenue accelerating, the stock looks underpriced: SE fair value of HK$916 is 118.2% above the price.

**Management said cloud revenue growth accelerated** to the low 20s percent and should ramp further as WorkBuddy cash receipts turn into revenue. A larger-parameter Hunyuan 4 model is due later this year, Xiaowei will roll out in phases across Weixin, and WorkBuddy token production is the priority. Analysts pressed on whether heavy capex pays back; management said compute can be rented out but its own models come first. The President expects "significant return in building a large and valuable AI-native new business for Tencent."

**Consensus has adjusted EPS growing** 3.2% in FY2026 and 4.7% in FY2027, well behind revenue growth of 9.7% in FY2026, so analysts expect AI costs to absorb much of the top-line gain. That outlook still sits far above the market's: the price implies revenue shrinking 10.5% a year, 20.2pp below consensus. Reported EPS is not comparable with these adjusted forecasts. EPS has beaten estimates in each of the last 8 quarters, which suggests the cautious earnings path may prove conservative.

**Profitability has stepped up sharply**. Gross margin rose from 43.1% in FY2022 to 56.3% in FY2025, a gain of 13.2pp. Operating margin climbed from 20.0% to 32.7% over the same years and now stands at 33.3%, above its five-year median of 26.8% and at the 87th percentile of the companies nearest in size. ROIC improved from 11.1% to 17.7%, well clear of the cost of capital. What holds Quality back is cash conversion, as heavy AI capex weighs on free cash flow.

**On cash flow**, SE fair value of HK$916 is 118.2% above the price, at medium confidence. The analysts' weighted target of HK$664 is 58.1% above the price. EV/EBIT of 12.8x sits 57% below its own ten-year median of 29.8x, and P/E is far below its long-run median. For the price to hold, AI capex has to earn returns before it erodes the net cash position. Operating margin slipping back from 33.3% would be the clearest sign it is not.

**The SE Score** is 1 of 3. Quality earns 3 stars because ROIC of 18% clears its cost of capital by about ten points and the balance sheet carries no net debt. Moat earns 2 stars, with ROIC above 15% in seven of the last ten years, although gross margin has been moderately volatile. Value earns 3 stars on the wide gap to fair value and left the two-star business tier as it was. A rank cap on five-year returns then lowered the overall score from 2.

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Weekly snapshot, not live data. For information only, not investment advice. Methodology: https://standard-equity.report/methodology