Tianfeng Securities: Maintaining Tencent Holdings (00700)'s “Buy” Rating Target Price of HK$476

The Zhitong Finance App learned that Tianfeng Securities released a research report stating that it maintains the “buy” rating of Tencent Holdings (00700), with a target price of HK$476. The company's AI business is being implemented at an accelerated pace, and the trend of industry connectivity is clear, and it is expected to spawn more new growth points in the medium to long term. In the short term, the bank expects the company's game revenue growth to increase quarterly in the second half of the year, with marginal attention to the operating pace of “Dungeons and Warriors: Origins”.

The main views of Tianfeng Securities are as follows:

The Chinese ability of the new-generation “Tencent Hybrid Turbo” model is benchmarked against GPT-4o. The 2BAI product system is comprehensive, and 2CAI products are also being upgraded at an accelerated pace

On September 5, Tencent launched the next-generation large-scale model “Tencent Hybrid Turbo”. Through a self-developed trillion-level interlayer heterogeneous MoE structure, Hybrid Turbo uses more experts and fewer active parameters to achieve better results. Compared with the previous model, Tencent's hybrid Turbo performance was significantly improved, training efficiency increased by 108%, inference efficiency increased by 100%, and inference costs were reduced by 50%. The results were compared to GPT-4O on multiple benchmark tests. In the “Chinese Big Model Benchmark Evaluation Report for August 2024” released by SuperClue, the Chinese Big Model Evaluation Benchmark, Tencent's mixed yuan model always ranked first among domestic big models. Currently, Tencent Hybrid Turbo has been launched on Tencent Cloud, and the input and output prices are only half that of the previous model. Businesses and developers can use Tencent's mixed-element large model capabilities through APIs, proprietary models, and fine-tuning models.

In addition, Tencent also released the AIInfra brand “Tencent Cloud Computing”. Tencent Cloud Intelligent Computing integrates Tencent Cloud products such as Tencent Cloud's high-performance computing HCC, high-performance network IHN Starline, high-performance cloud storage, acceleration frameworks, containers, vector databases, and intelligent computing kits. The vice president of Tencent Cloud said that Tencent Cloud Intelligent Computing has now served 90% of large domestic model manufacturers, and has also helped a large number of IDC (data center) manufacturers transform into AIDC (intelligent computing center) manufacturers.

Currently, Tencent's large model product matrix includes the underlying infrastructure (high-performance computing HCC, high-performance network star network, high-performance cloud storage, intelligent computing suite, etc.), the mid-level Tencent Cloud TI platform (providing Tencent mixed-element models, Tencent Cloud industry models, and mainstream open source models to choose from), upper layer platform tools (image creation engine, knowledge engine, video creation engine, Tencent components), and various intelligent applications (intelligent customer service, knowledge management, intelligent marketing, content creativity, R&D efficiency, office collaboration, data analysis, risk management and control).

Tencent launched the “Tencent Hybrid Assistant” applet in September of last year, and launched the Yuanbao app and smart device development platform component in May of this year. According to an interview with Liu Yuhong, head of Tencent's mixed yuan model, published on July 3, up to now, Tencent has had close to 700 internal business connections, and the number of internal calls is close to 300 million. Of these, about 70% have directly called the API, and about 30% have the mixed team and the business department participating in the refinement.

The bank is firmly optimistic that the company's entrance, scenario, data and other advantages will provide solid support in long-term AI business development. Since this year, B-side and C-segment products of Tencent's AI business have continued to advance. The bank believes that the overall integration of basic capabilities and applications of Tencent's big model is accelerating.

Taobao connects to WeChat Pay to focus on cooperation strategies between the two platforms for non-closed loop transactions

On September 4, Taobao announced that it plans to add WeChat Pay capabilities to enhance the consumer shopping experience. On the same day, according to the First Financial Report, Meituan Takeout and Meituan Hotel officially entered the Alipay Mini Program, and Meituan Group Purchase may be launched soon. We anticipate that the potential impact of Taobao's WeChat Pay interconnection on Tencent may include: 1) helping to increase WeChat Pay fee revenue; 2) helping Taobao and its merchants strengthen cooperation with Tencent advertising platforms; 3) helping Taobao merchants operate private domain operations through WeChat. Continue to pay attention to the promotion pace of WeChat Pay marketing tools in Taobao and the cooperation strategy between the two platforms for non-closed loop transactions.

“Operation Delta” will be launched soon, and we will continue to monitor the operating rhythm of “Dungeons and Warriors: Origins”

As long-term products resume growth and the “Dungeons and Warriors: Origins” contribution inflows are gradually confirming revenue, the bank expects the company's game revenue growth rate to continue to increase quarter by quarter in the second half of the year. At the marginal level, “Dungeons and Warriors: Origins” has been at the top of the iOS game bestseller list since its launch on May 21, and has remained in the top 2 most of the time. Since September 10, there has been a slight decline in game rankings, or partly related to the pace of content updates during the game's “Long Early Period”. Considering that “DNF Mobile Game” Hanbok was launched early in 2022, the bank believes that the national service version is likely to have abundant resources to update game content, and it is recommended to continue to pay attention to the pace of subsequent operations. Furthermore, the company's new game “Operation Delta” will be launched on all platforms on September 26, and is expected to further strengthen its market position in the shooter category.