Tencent Holdings Limited

Welcome to Tencent Holdings Limited 2026 second quarter results announcement webinar. I'm Wendy Huang from Tencent IR team. At this time, all participants are in a listen-only mode. After the management's presentation, there will be a question and answer session. For participants who dial in by phone, if you wish to ask a question, please press 5 on your telephone to raise your hand. If you are accessing from the Tencent Meeting or Vue Meeting application, please click the Raise Hand button at the bottom left. And please be advised that today's webinar is being recorded. Before we start the presentation, we would like to remind you that it includes forward-looking statements, which are underlined by a number of risks and uncertainties, and may not be realized in the future for various reasons. Information about general market conditions is coming from a variety of sources outside of Tencent. This presentation also contains some unaudited non-IFRS financial measures that should be considered in addition to, but not as a substitute for, measures of the group's financial performance propelled in accordance with IFRS. For a detailed discussion of risk factors and non-IFRS measures, please refer to our disclosure documents on the IR section of our website. Let me now introduce the management team on the webinar tonight. Our chairman and CEO, Pony Mao, will kick off with a short overview. President Martin Lau will provide a strategy review. Chief Strategy Officer James Mitchell will provide a business review. And Chief Financial Officer John Lau will conclude with financial discussion before we open the floor for questions. I will now pass it to Pony.

Thank you, Wendy. Good evening. Thank you, everyone, for joining us. As we enter into the third quarter of the year, we are making substantial progress toward building a new AI-empowered Tencent in terms of intelligence, applications, and infrastructure. At the intelligent level, Hunyuan series production version provide user a wide use model with a strong cost performance metrics and serve as a stepping stone toward the Hunyuan family of models, attaining state of the art capabilities in the future. At the application level, our work body, AI Office of Productivity Service and co-body, AI Coding 2, are achieving breakout user growth and are the clear leaders in the field in China today. At the infrastructure level, we substantially stepped up our procurement of compute, which will enable us to convert usage of our applications and models into revenue going forward. At the same time, we continue to enhance our existing services with a sustained marketing service revenue growth, several successful recently released games, and rapidly increasing video views on reaching video accounts. Looking at our financial numbers for the second quarter, total revenue was 205 billion RMB up 11% year-on-year. Growth profit was 118 billion RMB up 13% year-on-year. Non-IFRS operating profit was 76 billion RMB up 9% year-on-year. Excluding new AI products, non-IFRS operating profit was 86 billion RMB up 19% year-on-year. And non-IFRS net profit attributable to equity holders was 68 billion RMB up 9% year-on-year. Turning to our key services. For communication and social networks, combined MAU of WeChat and WeChat Group year-on-year and quarter-on-quarter to 1.4 billion. For digital content, TME's acquisition of Himalaya strengthened our audio content and unlocked new synergies with the ecosystem IPs, including from China literature. for games, new game, Local Kingdom World ranked first by average DAU and by gross receipt among all new games released in China industry-wide this year. For cloud, Workbody recently ranked first among productivities AI serviced in China based on monthly interactions. I will now hand over to Martin for the strategy review.

Thank you, Pony, and good evening and good morning to everybody. Today, we want to provide you with an update on our overall AI strategy. Tencent's existing businesses are growing solidly due to intrinsic modes and AI enablement. As discussed earlier this year, our modes arise from factors including network effect, depth, and value added along supply chain, IP, low tick rates, regulatory requirements, and private data. In addition to these modes, we're further deploying AI to boost returns in areas including Wei Xian games and advertising. As a result, our existing businesses provide a very strong financial support for our new AI initiatives. Regarding our new AI initiatives, we've made significant progress in constructing a robust foundation, including a substantially improved Huanyuan 3 foundation model with leading cost performance, work buddy and co-buddy that lead the China market in terms of AI productivity usage, and Yuanbao and Xiaowei serving as gateways to drive broader consumer AI adoption. We see increasing potential to generate attractive financial returns from franchise products with differentiated advantages, including Huanyuan, WorkBuddy, and Xiaowei over time. We're comfortable in making significant investments in AI because not only there is a substantial upside potential, there's also clear downside protection. The AI investments we're making are mostly in AI infrastructure. And in the worst case, which we do not believe that would happen, we can choose to rent that infrastructure out at cost recovery or even better prices via Tencent Cloud if needed. Now going on to the different components. First, on Huanyuan Foundation model. The release of Huanyuan 3's full production version is very successful, showing a substantial step up in performance compared to the Huanyuan 3 preview version. Leveraging the feedback loop from product teams to improve the quality and diversity of data used for post-training, and by scaling up reinforcement learning, Huanyuan 3 achieved a notable improvement in task completion rates and meaningful reduction in collucination and error rates. The improvements in Huanyuan 3's capabilities are most evident in its agentic capabilities and product experience. The model's performance step up across reasoning agentic and long context tasks delivered clear advantages for use cases such as coding, office work, financial modeling, and front-end design. These performance improvements drove accelerated user adoption and growing external customer demand, validating its practical utility in real-world usage as demonstrated by the approximately six times increase in average daily tokens usage of Huan Yuan 3 compared to the preview version across all channels during the pay period. Additionally, Huanyuan 3 consistently ranks among the top three models globally on open router based on token usage. Huanyuan 3's production version has performed well and will serve as a stepping stone toward the Huanyuan family of models achieving state-of-the-art capabilities in the future while providing users with the cost performance efficiency that they need today. We have been integrating Huanyuan into our products, making great impact. For WorkBuddy, Huanyuan can facilitate complex agent workflows with higher task success rates and reduced time to completion. For Yuanbao, Huanyuan delivers leading execution quality in information retrieval, data processing, document workflows, and everyday decision-making. In games, we're leveraging Huanyuan for AI teammate creation and code review for games, including our flagship game, Peacekeeper Elite. And in Weixin, we deployed Huanyuan for powering the AI assistant in official accounts and the developer tools for mini programs. At the same time, product integration is making Huanyuan better. By continuously feeding real-world product usage and domain feedback into model training, a model product co-design approach allows Huanyuan to validate model accuracy and identify and work on edge cases, enabling faster model iteration and sustained performance gains. Having now established a new system for fast model iteration and with the Huanyuan 3 validating the system, we're accelerating the improvement of our model. We're scaling more powerful reinforcement learning to substantially upgrade models after pre-training is done. And we're in the process of upgrading multimodal capabilities. More importantly, we're training a larger parameter model Huanyuan 4, which we expect to release later this year. by accelerating the technical iteration and pushing the boundaries of model intelligence, we're confident Huanyuan's capabilities will reach state-of-the-art level. We believe we will generate significant return in building a large and valuable AI native new business for Tencent. The rationale behind investing in our own foundation model is that we can achieve better unit economics, more innovative features, and more exposure to the value of intelligence through co-design across our applications, our model, and our compute infrastructure, especially at this early stage of AI diffusion. And moving on to the application front, our AI office productivity workspace, WorkBuddy, and coding tool, CodeBuddy, are achieving breakout success in terms of capability and user growth. They're the clear leading office productivity service in China based on monthly interactions. WorkBuddy serves as a one-stop shop workspace that orchestrates multiple agents to handle complex work from end to end. Users can remotely control WorkBuddy via Weixin and WeCom as well as VPC and access to over 70,000 skills from Tencent Cloud Skill Hub. Besides the rapid user adoption of WorkBuddy, it is also achieving high retention rates and high willingness to pay among users as it directly contribute to users' productivity. It also attracts growing and more vibrant developer community by embedding skill pay and wage and pay inside task flows to enable payouts for developers when their skills are called. This progress supports our view that there are substantial opportunities to be unlocked in the productivity market, including coding and existing office work scenarios. We're currently focused on investing in market education and extending our market leadership position. Over time, product economics will be attractive as enhanced premium benefits accelerate paying user growth, while we can reduce token costs through agent efficiency, inference efficiency and model optimization. Given Tencent applications such as Weixin, Recom and Tencent Meeting are already widely used by enterprises, WorkBuddy provides a new way for us to monetize our enterprise relationships. On the consumer front, We recently released a prototype of Xiaowei, which delivers an embedded and context-aware agentic AI experience within Weixin, leveraging Weixin's social graph, knowledge graph, merchant reach, and payment functionality. Xiaowei is powered by the Weixin customized model, VLM, built with a focus on user privacy, Weixin specific use cases and cost efficiency. Xiaowei can help users navigate and derive insights from Weixin's diverse content universe in a personalized and efficient manner. Xiaowei can also leverage Huixin's unique mini program ecosystem to help users discover products, make purchase decisions, and place orders, link the groundwork for an agent-to-agent transaction loop. While the prototype can technically handle advanced agentic workflows, we currently configure Xiaowei to require user intervention and multiple step confirmations as safety measures. Xiaowei will be rolled out to broader user base in a phased approach as we work on several core initiatives to elevate the user experience. These include upgrading Xiaowei's dialogue, memory and recommendation capabilities, expanding service and content integrations, scaling our AI infrastructure and upgrading our harness to support a significantly larger user base. As we upgrade Weixin for the AI era, we can do it in a cost efficient way. And we're confident that AI will over time accelerate the growth and thus the monetization of the entire Weixin ecosystem, generating attractive return for us. Turning to Yuanbao, we are focusing on improving its capabilities and user experience, particularly in search, speech recognition and text-to-speech functionality. We're also improving its ability to address broader long-tail AI needs of consumers, including multimodal generation. Yuanbao plays an important role in the co-designed flywheel as its conversational use cases generate valuable feedback to help improve our Hunyuan family of models. Over time, functionalities developed and honed by Yuanbao can become atomic capabilities for use in other Tencent products, such as WorkBuddy, CodeBuddy, Weixin, and QQ Browser. And with that, I pass on to James.