腾讯控股(00700) 　　3Q16 revenue was 3-5% above consensus due to stable PC/mobile gamesand strong social networking and payment/cloud services. Ad growthdecelerated to 51% YoY, with segment GPM narrowing to 36% on contentspending. We keep earnings unchanged, and trim our SOTP-based TP fromHK$241 to HK$240 to reflect higher valuation of payment/cloud partly offsetby lower ad valuation. Reiterate OP. 　　Impact 　　3Q16 revenue beat and earnings in line. Revenue grew 13% QoQ and 52%YoY to RMB40.4bn, 3-5% above MQ and consensus, on 87% YoY mobilegame revenue growth and 58% YoY social networking revenue growth. GPMdeclined from 57.3% in 2Q16 to 54% in 3Q16 as payment/cloud of lowermargin accounted for a higher proportion of revenue, i.e. 12% in 3Q16 vs 10%in 2Q16 and video content investment increased. Adjusted profit grew 4%QoQ and 42% YoY to RMb11.7bn, 3% above MQ and in line with consensus. 　　Mobile and PC games held up. Mobile game revenue grew 3% QoQ and87% YoY to RMB9.9bn with Honour of Kings’ DAU surpassing 40mn. PCgame revenue grew 10% YoY despite ACU decline, reflecting a strategy shiftfrom maximising user time spent within games toward overall userengagement through e-Sports, game video streaming and interest tribes. 　　Content investments weigh on ad margins. Ad revenue grew 51% YoY toRMB7.4bn, 5% below MQ. Segment GPM declined from 49% in 3Q15 to 36%in 3Q16 due to higher video content investment, e.g. Voice of China and theRio Olympics. Performance ad revenue continued strong growth at 83% YoY,driven by Weixin Moments and news app. Brand ad revenue growthdecelerated to 21% YoY partly due to reallocation of certain news feedinventory to performance formats. LBS ad on Weixin Moments is gainingpopularity among advertisers from real estate, wedding services and auto. 　　Payment/cloud continued strong momentum. Payment/cloud/othersrevenue grew 398% YoY to RMB5bn or 12% of total revenue, up from 10% in2Q16. Segment GPM improved further to 18%, up from 11% in 2Q16 on alarger scale. Tencent introduced a new Weixin Checkout feature to simplifyon-boarding procedures for merchants and enable faster adoption of WeixinPay. Cloud services revenue more than tripled YoY, driven by key sectorssuch as online games, video and O2O services. 　　Earnings and target price revision 　　Keep earnings unchanged and trim TP from HK$241 to HK$240. 　　Price catalyst 　　12-month price target: HK$240.00 based on a Sum of Parts methodology. 　　Catalyst: Game launches, WeChat Moment ads, margin recovery.