Tencent (Hong Kong stock 0700) is down 10% at HK$195 in early afternoon session, after reporting weaker-than-expected results; its 4Q10 net profit rises 46% to CNY2.20 billion but comes in below CNY2.31 billion tipped in a Dow Jones poll.

Morgan Stanley says the 4Q earnings are roughly in line; it notes Tencent’s 4Q online game revenue expanded 9% on quarter and 79% on year to CNY2.8 billion, while internet value-added services contributed 79% of total revenue, compared to 79% in 3Q10 and 77% in 4Q09. The house raises its total revenue forecast by 2% for both 2011 and 2012, and hikes its diluted EPS forecasts by 3% for 2011 and 7% for 2012. It keeps the stock at Overweight.

Credit Suisse says, “Due to lower 4Q10 results and higher marketing/R&D spending, we cut 2011 EPS by 10% and 2012 EPS by 5%” . The house notes Tencent’s 4Q EPS was 5% below its view, due to higher marketing and tax expenses. Still, the house keeps the stock at Outperform, as its several hidden assets are yet to be exploited in its valuation; It estimates Tencent gained CNY1.8 billion from the Mail.ru Group (MAIL.LN) IPO, but the gain was not recognized in its P&L statement.

Citigroup raises Tencent (0700.HK) target price to HK$250 from HK$220 on rolling forward to 2012 estimates. The house lowers FY11-12 net profit estimates by 3.3% and 4.5% after the company said it expects to invest aggressively in R&D staff, promotional expenses in microblog and ecommerce as well as content acquisition for its microblog, video and other media services, which will significantly increase costs this year. The house expects margins to come under pressure as these long-term investments won’t yield any revenue contributions near-term. The house expects operating margins to decline to 46.3% in 2011, down from 50.1% in 2010. “We see the stepped-up investment as necessary to defend and strengthen its platform; nevertheless, if the new games launch this year, such as LOL, could generate better-than-expected performance, it could help lessen the margins pressure. Together with its gradual open platform initiatives, we believe growth opportunities for Tencent remain solid and intact.” The house keeps a Buy call.

Goldman Sachs cuts Tencent’s EPS Estimates,but revise ups its target price to HK$200 from HK$185 and keeps its Neutral rating. The house raised its revenue estimates and reduced its operating margins, leading to reducation of 2011 EPS by 2% to HK$6.65, 2012 by 2% to HK$8.28, and 2013 by 2% to HK$10.14.

BNP Paribas analyst Yvonne Yang says ”potential share price correction on margin pressure would be good opportunity to accumulate” shares.

HSBC raises Tencent’s target price to HK$262 from HK$240.