腾讯控股(00700) 　　We are turning incrementally more positive on Tencent’s revenue growthoutlook on payment. Nonetheless, we expect payment will remain aninfrastructure role within Tencent’s ecosystem in the next two to three years with insignificant profit contribution. We are incrementally more cautious onTencent’s cost structure due to: 1) video content spend as a result of intensifying competition, and 2) marketing efforts to drive offline payment adoption. We cut our 2016E/17E/18E non-GAAP EPS by 3%/0%/1% and tweak our PT to HK$257 　　Payment: better revenue outlook but not necessarily profit. We attribute therapid growth of payment revenue to adoption of Tencent’s mobile payment inoffline commercial scenarios and improvement in GM to commercial paymentoutgrowing social payment as a result of marketing efforts. However, we expectpayment margin to remain structurally lower than overseas peers in the next two to three years for: 1) difference in regulatory environment, and 2) duopoly market structure in China’s mobile payment market with Alipay taking a larger market share than Tencent (52% vs. 38%). Strategically, we believe payment helps Tencent deepen consumer behavior insights and paves the way forInternet finance growth. 　　Outlook for P4P ad remains intact while brand ads profit outlookdeteriorates on cannibalization from subscription, shift of ad dollars andcontent spend. P4P ad revenue increased 3.3x since 1Q15 driven mainly byincrease in inventory utilization with insignificant inventory addition. Out of the 3 key drivers of P4P ad, we believe Tencent has mainly focused onimprovement of sell-through rate (i.e., utilization of ad inventory) bydecomposing and selling traffic to different advertisers through differentproducts. The other two drivers (ad load and pricing) remain under-utilized vs.global and domestic peers. For brand ad, we believe rise of high engagementplatforms such as news aggregation and social media are gaining ad budget fromportals. Intensifying competition on video content among Tencent, Baidu andAlibaba will lead to higher content costs in 2017E. 　　Maintaining OW and tweaking PT to HK$257. PT is based on 2017E non-GAAP EPS of HK$7.75, 2017-19E EPS CAGR of 27.6% and a PEG of 1.2x. PTimplies 33x 2017E P/E.