Financial Data and Key Metrics Changes - The company reported a 33% year-over-year increase in IFRS net profit to RMB1.8 billion and a 26% increase in non-IFRS net profit to RMB2 billion [19] - Total revenues decreased by 2% year-over-year to RMB7.2 billion, primarily due to a decline in revenues from social entertainment and other services [19] - Online music revenues increased by 28% year-over-year to RMB5.4 billion, driven by strong growth in music subscription revenues and advertising revenues [19][20] Business Line Data and Key Metrics Changes - Music subscription revenues reached RMB3.7 billion, marking a 29% year-over-year increase and a 3% sequential rise [20] - The number of online paying users increased by 18% year-over-year to 117 million, with quarterly net additions of 3.5 million [20] - Revenues from social entertainment services decreased by 43% year-over-year to RMB1.7 billion [21] Market Data and Key Metrics Changes - The company experienced strong growth in advertising revenues, attributed to ad-supported advertising and promotions during the 618 mid-year shopping festival [21] - The gross margin for Q2 reached 42%, an increase of 7.7 percentage points year-over-year, driven by the expansion of the paying user base and improved monthly ARPPU [22] Company Strategy and Development Direction - The company is focused on high-quality growth in its music business, expanding SVIP membership, and improving operational efficiency [26] - The strategy includes investing in high-quality content and innovative technologies to enhance user engagement and experience [26] - The company aims to maintain a balance between subscriber growth and ARPPU expansion, with a focus on enriching member privileges [20][30] Management Comments on Operating Environment and Future Outlook - Management remains optimistic about achieving healthy revenue and profit growth in 2024, despite challenges from the macro environment [29][58] - The online music business is seen as a low-cost entertainment option, which is less affected by macroeconomic downturns [58] - The company expects advertising revenue to perform well in the coming quarters, supported by growth in ad-supported advertising and offline event sponsorships [31][59] Other Important Information - The company launched new features to enhance user experience, including improved sound quality and personalized music discovery [13][15] - The self-produced content continues to gain popularity, contributing to user conversion and engagement [10][11] Q&A Session Summary Question: Outlook for the second half of 2024 regarding top line growth and profitability trends - Management expects healthy revenue and profit growth, with both net additions and ARPPU contributing to online music growth [29] Question: Details on ARPPU growth strategies - Future ARPPU growth will be driven by the SVIP plan, which offers enhanced privileges and sound quality [34][36] Question: Membership net adds trend and long-term penetration - Management aims for steady growth in net adds while focusing on revenue and profit, with confidence in achieving long-term subscriber targets [44][47] Question: Profitability and margin trends - Management is confident in continued gross and net margin growth, supported by subscription and advertising revenue increases [48][52] Question: Impact of macro headwinds on business segments - The macro environment poses challenges, but the online music business remains resilient, with advertising and sponsorships expected to perform well [58][59] Question: Changes in the competitive landscape - The company plans to maintain its competitive position by improving content and user experience [60][62]

Investment Rating - The report maintains an "Outperform" rating for Tencent Music (TME.N) [4][15][19] Core Views - The online music business is experiencing robust growth, with a focus on the SVIP membership program for the second half of 2024, which is expected to enhance ARPPU and overall profitability [2][15] - The company has shown strong performance in managing costs, leading to an upward revision of profit expectations for 2024-2026 [2][15] Financial Performance Summary - In Q2 2024, Tencent Music reported total revenue of 71.6 billion yuan, a year-on-year decrease of 1.7% but a quarter-on-quarter increase of 5.8%. Online music revenue accounted for 76% of total revenue [5][10] - The gross margin for Q2 2024 was 42.0%, up 7.8 percentage points year-on-year, while the adjusted net profit reached 19.6 billion yuan, reflecting a year-on-year increase of 25.7% [5][10] - The subscription business generated revenue of 37 billion yuan in Q2 2024, marking a year-on-year growth of 29% [8][10] User Metrics and Growth - The number of subscription users increased by 3.5 million in Q2 2024, with expectations of an additional 1.5 to 2 million in Q3 2024. The paid user penetration rate reached 20.5%, up 3.8 percentage points year-on-year [10][12] - The monthly ARPPU (Average Revenue Per Paying User) was 10.7 yuan, reflecting a year-on-year increase of 10.3% [10][12] Revenue Projections - The report forecasts adjusted net profits of 75 billion yuan, 87 billion yuan, and 93 billion yuan for 2024, 2025, and 2026 respectively, with slight upward adjustments of 2% for 2024 and 2025 [2][15][17]

Investment Rating - Maintain "Overweight" rating [2] Core Views - Revenue for 2Q24 reached RMB 7.16 billion (yoy -1.7%), slightly above Bloomberg consensus of RMB 7.13 billion [2] - Gross profit increased by 20.5% yoy to RMB 3.01 billion, with gross margin rising to 42.0% (yoy +7.7pct) [2] - Adjusted net profit grew by 26% yoy to RMB 1.99 billion, surpassing Bloomberg consensus of RMB 1.83 billion [2] - Online music revenue grew by 27.7% yoy to RMB 5.42 billion, accounting for 75.8% of total revenue [2] - Social entertainment revenue declined by 42.8% yoy to RMB 1.74 billion, with a slowdown in the rate of decline compared to previous quarters [2] - Operating profit surged by 42.8% yoy to RMB 2.2 billion, driven by effective cost management and expense control [2] - The company is focusing on developing its SVIP super membership, which is expected to drive ARPPU growth in the medium to long term [2] Financial Performance Summary Revenue and Profit - 2Q24 revenue: RMB 7.16 billion (yoy -1.7%) [2] - 2Q24 gross profit: RMB 3.01 billion (yoy +20.5%) [2] - 2Q24 adjusted net profit: RMB 1.99 billion (yoy +26%) [2] - 2Q24 adjusted net profit attributable to shareholders: RMB 1.87 billion (yoy +22.5%) [2] Online Music Business - Online music revenue: RMB 5.42 billion (yoy +27.7%) [2] - Subscription revenue: RMB 3.74 billion (yoy +29.4%) [2] - Paid subscribers: 117 million, with a net increase of 3.5 million qoq [2] - Subscription ARPPU: RMB 10.7 (yoy +10.3%) [2] Social Entertainment Business - Social entertainment revenue: RMB 1.74 billion (yoy -42.8%) [2] - Social entertainment ARPPU: RMB 73.2 (yoy -45.8%) [2] Cost and Expense Management - Operating costs decreased by 13.3% yoy to RMB 4.15 billion [2] - Total expenses decreased by 8.5% yoy to RMB 1.15 billion [2] - Management expenses decreased by 10.2% yoy to RMB 938 million [2] Future Outlook - Revenue forecasts for 2024-2026 are slightly revised downward to RMB 28.4 billion, RMB 30.9 billion, and RMB 32.5 billion, respectively [2] - Adjusted net profit attributable to shareholders is expected to grow steadily, with forecasts maintained for 2024-2026 [2] - The company's focus on SVIP development is expected to drive ARPPU growth and enhance subscription business performance [2] Market Data - Current price: USD 11.12 [4] - Total market capitalization: USD 19.1 billion [5] - 52-week price range: USD 5.7 - USD 15.77 [5] - 3-month turnover rate: 90.2% [5] Financial Projections Income Statement - 2024E revenue: RMB 28.406 billion [6] - 2025E revenue: RMB 30.924 billion [6] - 2026E revenue: RMB 32.466 billion [6] - 2024E adjusted net profit attributable to shareholders: RMB 7.357 billion [6] - 2025E adjusted net profit attributable to shareholders: RMB 8.4 billion [6] - 2026E adjusted net profit attributable to shareholders: RMB 9.367 billion [6] Balance Sheet - 2024E total assets: RMB 82.195 billion [6] - 2025E total assets: RMB 90.889 billion [6] - 2026E total assets: RMB 100.483 billion [6] Cash Flow - 2024E operating cash flow: RMB 8.356 billion [6] - 2025E operating cash flow: RMB 8.86 billion [6] - 2026E operating cash flow: RMB 9.729 billion [6]

交银国际研究 公司更新 互联网 2024 年 8 月 14 日 收盘价 目标价 潜在涨幅 美元 11.12 美元 14.00↓ +25.9% 腾讯音乐 (TME US) 2 季度利润超预期；全年音乐会员净增下调，聚焦 SVIP 运营提升 ARPPU 2024 年 2 季度利润超预期。腾讯音乐 2 季度收入为 72 亿元（人民币，下 同），基本符合我们和 Visible Alpha 一致预期，同比降 2%，仍受社交娱乐 业务调整影响。毛利率 42%，同/环比优化 8/1 个百分点，持续受益于订阅 及广告收入增长、自制内容增加。经调整归母净利润 18.7 亿元（同比增 22%），高于市场预期的 17.9 亿元，经调整净利率 26%，同环比提升 5/1 个百分点，受益于毛利率优化及管理费用优化，部分被税率提升所抵消。 在线音乐基本符合预期。在线音乐收入 54 亿元，同比增 28%，收入占比 环比提升 2 个百分点至 76%。音乐订阅维持增势，同比增 29%。音乐会员 1.17 亿，环比净增 350 万，略低于 Visible Alpha 一致预期的 366 万，对应 付费率 20.5%，同/环比+3.8/0.9 个 ...

Investment Rating - The report does not explicitly state an investment rating for Tencent Music Entertainment (TME) [2] Core Views - TME's 24Q2 performance exceeded expectations with a net profit of RMB 1.79 billion, up 33.1% YoY, and an adjusted net profit of RMB 1.99 billion, up 25.7% YoY [2] - Revenue for 24Q2 was RMB 7.16 billion, up 1.7% YoY, with an operating profit of RMB 2.2 billion, up 42.8% YoY, and an operating profit margin of 30.7% [2] - Online music service revenue grew 27.7% YoY to RMB 5.42 billion, driven by strong growth in subscription revenue and advertising income [2] - Social entertainment and other services revenue declined 42.8% YoY to RMB 1.74 billion due to adjustments in live streaming features and increased competition [2] - Gross margin and net margin have improved for nine consecutive quarters, with a gross margin of 42.0% and a net margin of 25.1% in 24Q2 [2] - The company expects steady growth in net paying users and anticipates ARPPU growth driven by SVIP offerings, which could further enhance profitability [2] Business Performance - Online music subscription revenue reached RMB 3.74 billion, up 29.4% YoY, with paying users increasing to 117 million, up 17.7% YoY [2] - ARPPU for online music services was RMB 10.7, up 10% YoY, with SVIP offerings expected to drive further ARPPU growth [2] - Advertising revenue saw strong growth due to diversified product offerings and innovative ad formats [2] - Social entertainment revenue declined due to stricter compliance measures and competitive pressures [2] Financial Metrics - Gross margin improved by 7.7 percentage points YoY to 42.0% in 24Q2 [2] - Net margin increased by 6.6 percentage points YoY to 25.1% in 24Q2 [2] - Adjusted net margin rose by 6.1 percentage points YoY to 27.8% in 24Q2 [2] - Sales expenses were RMB 210 million, with a sales expense ratio of 2.9%, flat YoY [2] - Management expenses were RMB 938 million, with a management expense ratio of 13.1%, down 1.2 percentage points YoY [2] Future Outlook - TME expects ARPPU growth to outpace net paying user growth in the second half of the year, driven by SVIP offerings [2] - SVIP benefits include early access to digital albums, enhanced audio quality features, and multi-device access, with a monthly price of RMB 40 compared to RMB 15 for regular members [2] - The company anticipates further improvements in gross and net margins for the full year [2]

14 Aug 2024 CMB 国际全球市场 | 股票研究 | 公司更新 TME (TME US) 内联第二季度业绩 ； 关注平衡增长 2H24E 中的音乐潜艇和 ARPPU US$16.00 TME 于 8 月 13 日宣布第二季度业绩 ： 总收入同比下降 2% 至 21.9% 71.6 亿元人民币 ， 符合我们 / 彭博社普遍估计的 71.6 / 71.3 亿元人民币 ； 非国际财务报告准则净收入同比增长 22% ， 达到 18.7 亿元人民币 ， 领先 2 / 2% 我们的 / 共识估计。对于 2H24E ， 管理层将更多地关注平衡 音乐潜艇和 ARPPU 的增长 ， 预计音乐用户网络会增加 但季度环比 ARPPU 持续增长 ， 这引发了一些投资者的担忧。 也就是说 ， 管理层重申了其长期目标 （ 1.5 亿音乐用户 & 每月 ARPPU 15 元人民币 ） 。我们对 TME 收益复合年增长率保持乐观 FY24 - 26E （ + 21% ） 受核心音乐收入增长和 GPM 扩张的推动。 我们维持 FY24 - 26 非国际财务报告准则净收入预测基本不变 ， 并且 将我们的 DCF 衍生 TP 维持在 1 ...

14 August 2024 | 6:40AM HKT Tencent Music Entertainment Group (tme) Buy Earnings Review: 2024 in-line: Shifting gear to ARPPU over subs, expectation reset but still long runway of growth; Buy TMEUpside: 27.7%12m Price Target: $14.20Price: $11.12 1698.HK12m Price Target: HK$55.10Price: HK$53.50Upside: 3.0% TME delivered in-line 2Q24 results (see our note) yet produced a mixed outlook over 2H24-2025 including: 1) A shift in gear of growth drivers may raise concerns for some investors on multiple contraction, ...

Investment Rating - The report maintains a "Buy" rating for Tencent Music Entertainment Group (TME) with a 12-month price target of US$16.00 per ADS and HK$62.30 for 1698.HK, indicating an upside potential of 21.9% [7][10]. Core Insights - Tencent Music reported 2Q24 revenue largely in line with expectations, showing a slight year-over-year decline of 2% but a significant increase in non-GAAP operating profit by 39% year-over-year [2][4]. - The company achieved a record high gross profit margin (GPM) of 42%, reflecting an 8 percentage point increase year-over-year, driven by operating leverage from online music services and subscriber growth [4][8]. - The number of paying subscribers increased by 3.5 million quarter-over-quarter, with an average revenue per paying user (ARPPU) of RMB 10.7, marking a 10% year-over-year improvement [4][8]. Financial Performance Summary - **Net Revenues**: RMB 7,160 million, down 2% year-over-year, and slightly below Goldman Sachs estimates [4]. - **Online Music Revenues**: RMB 5,424 million, up 28% year-over-year, indicating strong growth in this segment [4]. - **Adjusted Net Income**: RMB 1,873 million, a 22% increase year-over-year, slightly above estimates [4]. - **Gross Margin**: Increased to 42%, surpassing expectations, with a target of 45% in the medium term [4][8]. - **Operating Expenses**: Remained disciplined, with total OPEX largely flat quarter-over-quarter, reflecting a focus on cost management [4][8]. Subscriber and Revenue Metrics - **Total Subscribers**: 117 million, with a year-over-year growth of 18% [4]. - **ARPPU**: RMB 10.7, showing a 10% increase year-over-year [4]. - **Quarterly Subscriber Growth**: Sustained momentum with 3.5 million net adds [4][8]. Market Outlook - The management's outlook for 3Q growth in subscribers and ARPU, along with profitability expansion, will be critical to watch [2][4].

Investment Rating - The report maintains a "BUY" rating for the company with a target price of US$16.00, indicating a potential upside of 21.9% from the current price of US$13.13 [5][11]. Core Insights - The company reported inline 2Q24 results with total revenue declining by 2% YoY to RMB7.16 billion, while non-IFRS net income increased by 22% YoY to RMB1.87 billion, exceeding estimates [3][4]. - Management aims for balanced growth in music subscribers and ARPPU in 2H24E, with expectations of slower subscriber growth but continued ARPPU growth [3][4]. - The long-term target remains at 150 million music subscribers and RMB15 in monthly ARPPU, with a projected earnings CAGR of 21% over FY24-26E [3][4]. Revenue and Profitability - Online music revenue grew by 28% YoY to RMB5.42 billion in 2Q24, accounting for 76% of total revenue, with subscription and non-subscription revenues increasing by 29% and 24% YoY, respectively [3][4]. - The gross profit margin (GPM) expanded by 7.7 percentage points YoY to 42.0% in 2Q24, driven by margin improvements in the online music business and enhanced monetization strategies [3][4][10]. - For FY24E, non-IFRS net income is estimated to grow by 27% YoY to RMB7.50 billion, supported by GPM expansion and operational expense control [3][4]. Future Outlook - The company forecasts total revenue growth of 8% YoY to RMB7.06 billion in 3Q24E, primarily driven by a 24% YoY increase in online music revenue, despite a decline in social entertainment revenue [3][4]. - GPM is expected to further expand to 42.8% in 3Q24E, with continued focus on high-value programs and AI technology to enhance user experience [3][4][10]. - The company’s valuation remains fair at 21x FY24E PE, reflecting confidence in its growth trajectory [3][4].

14 Aug 2024 CMB International Global Markets | Equity Research | Company Update TME (TME US) Inline 2Q24 results; focus on balanced growth of music subs and ARPPU in 2H24E TME announced 2Q24 results on 13 Aug: total revenue declined by 2% YoY to RMB7.16bn, in line with our/Bloomberg consensus estimate of RMB7.16/7.13bn; non-IFRS net income was up by 22% YoY to RMB1.87bn, 2/2% ahead of our/consensus estimate. For 2H24E, management will focus more on balanced growth of music subs and ARPPU, expecting slower m ...