We maintain O/P on Tencent post its decent 4Q24 results, with accelerating topline growth and higher EBITDA margin; FOCF contracted due to a one-off surge in capex for GPUs, but debt metrics remained stable and modest. We expect Tencent’s topline growth to remain steady at a high single percentage in FY25, thanks to its advertising, domestic/international gaming, fintech and cloud segments; we expect EBITDA margin to edge higher to 43% on a favorable revenue mix; we expect FOCF to expand and debt metrics to further improve. We continue viewing Tencent as a core holding in China and Asia IG credits, and we like its 2030/2031/2041 in particular.

While Chinese regulators have adopted a more friendly stance towards tech companies, any regulatory clampdowns abroad and domestically (e.g. antitrust rules, data security, personal information protection laws) may affect Tencent’s business. Tencent’s gaming, music streaming, and online payment units are among those that have come under regulatory scrutiny in the past.

Tencent uses variable interest entities (VIEs) to circumvent China’s restrictions on foreign ownership of Internet Content Providers, which poses regulatory risks. Specifically, VIE transactions involving “change in control” will be subject to antitrust regulatory processes.

US-China tension may escalate under the new Trump Administration, including additional chip sanctions, which may result in higher volatility. Failing to secure a stable supply of advanced AI chips and/(or) find domestic alternatives could weigh on the long-term AI development of Tencent against international peers.