TME(TME) Goldman Sachs·2024-08-14 02:59Investment Rating - The report maintains a "Buy" rating for Tencent Music Entertainment Group (TME) with a 12-month price target of US62.30 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].