TME(TME) Guoyuan Securities2·2025-04-24 09:44Investment Rating - The report maintains a "Buy" rating for Tencent Music (TME.US) with a target price of $15.80, indicating a potential upside of 20.2% from the current price of $13.14 [1][6][11]. Core Insights - The company achieved robust performance in 2024, with total revenue of 28.4 billion RMB, a year-on-year increase of 2.3%. Net profit reached 7.11 billion RMB, up 36.2%, while adjusted net profit was 8.14 billion RMB, reflecting a growth of 30.7% [4][8]. - The integration of AI technology into the music experience is expected to drive a second growth curve for the business, enhancing user engagement and creating new commercial opportunities [5][9][10]. - The report highlights the company's strategic focus on AI technology as a key driver for enhancing its competitive edge in the digital music sector, leading to improved user experience and content ecosystem [6][11]. Financial Performance - In 2024, the online music service revenue was 20.23 billion RMB, growing by 16.1%, with subscription revenue reaching 15.23 billion RMB, a 25.9% increase. The number of paid users grew to 121 million, a 13.4% increase [8]. - The sales gross margin improved from 35.3% in 2023 to 42.3% in 2024, driven by strong growth in subscription and advertising revenues [4][8]. - The report projects continued revenue growth, with expected revenues of 31.08 billion RMB in 2025, reflecting a year-on-year growth of 9.43% [7]. Shareholder Structure - Major shareholders include Tencent with a 47.80% stake and Spotify with 4.12% [3]. Valuation Metrics - The report values the online music business at 7 times price-to-sales (PS) and the social entertainment business at 6 times price-to-earnings (PE), supporting the target price of $15.80 [6][11].