Investment Rating - The investment rating for the company is maintained as "Buy" [2][7]. Core Views - The company operates a content platform with a high concentration of young users and a favorable competitive landscape, which is expected to drive growth in subscription revenue [7]. - The online music revenue for the company is projected to grow by 23% year-on-year in 2024, primarily driven by a 22% increase in subscription membership [7]. - The company has a significant growth opportunity in its paid user base, with a current payment rate of 26% compared to Spotify's 39% [7]. - The domestic music platform landscape is more favorable than overseas, with a higher theoretical profitability ceiling due to a more fragmented upstream market [7]. - The company has a strong focus on community building and user retention, particularly among younger demographics, which enhances its long-term growth potential [7]. - Following its re-inclusion in the Hong Kong Stock Connect in September 2024, the company's liquidity has improved significantly [7]. - The profit forecast has been adjusted, with expected revenues of 82 billion and 91 billion for 2025 and 2026 respectively, and adjusted net profits of 17.8 billion and 20.8 billion for the same years [7]. Financial Data and Profit Forecast - Revenue projections for the company are as follows: - 2023: 7,867 million - 2024: 7,950 million - 2025E: 8,238 million - 2026E: 9,094 million - 2027E: 9,997 million [6][8] - Adjusted net profit forecasts are: - 2023: 819 million - 2024: 1,700 million - 2025E: 1,781 million - 2026E: 2,078 million - 2027E: 2,369 million [6][8] - The company’s price-to-earnings (PE) ratios for 2025-2027 are projected to be 18, 15, and 13 respectively [7].

Core Viewpoint - NetEase Cloud Music has issued a stern statement regarding the recent malicious rumors circulating online, which involve fabricated images that combine screenshots of its accounts with inappropriate content [1] Group 1 - The company emphasizes that the related images are entirely fabricated and have severely impacted its brand reputation [1] - NetEase Cloud Music has collected evidence against those who maliciously spread rumors and reserves the right to pursue legal action [1]

Financial Performance - The company's revenue increased by 1.1% from RMB 7,866,992 thousand in 2023 to RMB 7,950,146 thousand in 2024[7] - Gross profit rose by 27.5% from RMB 2,102,670 thousand in 2023 to RMB 2,681,512 thousand in 2024[7] - Profit before tax surged by 104.5% from RMB 767,679 thousand in 2023 to RMB 1,570,255 thousand in 2024[7] - Net profit for the year increased by 113.2% from RMB 734,182 thousand in 2023 to RMB 1,565,369 thousand in 2024[7] - Adjusted net profit reached RMB 1,700,078 thousand in 2024, up 107.7% from RMB 818,500 thousand in 2023[8] - Gross margin improved from 26.7% in 2023 to 33.7% in 2024, with adjusted net profit soaring from RMB 818.5 million to RMB 1,700.1 million, over 100% growth[13] - Operating costs decreased by 8.6% to RMB 5,268.6 million in 2024, primarily due to a reduction in content service costs[33] - Net profit for 2024 was RMB 1,565.4 million, compared to RMB 734.2 million in 2023, reflecting a significant improvement in profitability[31] - Adjusted net profit for 2024 was RMB 1,700.1 million, up from RMB 818.5 million in 2023, indicating strong operational performance[31] - Financial revenue decreased from RMB 437.9 million in 2023 to RMB 406.2 million in 2024, primarily due to a decline in interest income from USD fixed deposits[42] - Income tax expense dropped significantly from RMB 33.5 million in 2023 to RMB 4.9 million in 2024, mainly due to a reduction in withholding tax on interest income[43] - Profit for 2024 was recorded at RMB 1,565.4 million, a substantial increase from RMB 734.2 million in 2023[44] User Engagement and Growth - The number of subscription members grew significantly, contributing to a 22.2% increase in subscription revenue year-on-year[12] - Monthly active users continued to rise, with the daily active users to monthly active users ratio remaining above 30%[11] - User engagement improved, with increased retention rates and listening duration among subscribers[12] - Average listening time for long audio content per user increased significantly by 35.8% year-on-year in 2024[21] - User retention rates improved to 85%, reflecting successful engagement strategies implemented over the past year[8] - The company reported a significant increase in user engagement, with a year-over-year growth of 25% in active users[1] Strategic Initiatives and Partnerships - The company expanded its music content library, focusing on popular music to cater to younger audiences, including partnerships with major Korean music labels[12] - New strategic partnerships were established with major K-Pop labels like JYP Entertainment and CJ Entertainment, as well as with Kakao Entertainment[16] - The company plans to enhance collaboration with copyright holders to expand content supply in popular music genres such as rap and rock[16] - The company is focusing on expanding its market presence through strategic partnerships and acquisitions, as indicated by the various agreements signed[116][118] - The company is committed to developing new technologies and products, as evidenced by the ongoing collaborations in software and internet services[118] Operational Efficiency and Cost Management - The company is focused on optimizing operational efficiency and cost management to achieve sustainable growth[13] - Sales and marketing expenses decreased by 19.3% to RMB 611.5 million in 2024, attributed to a more cautious promotional strategy[35] - Research and development expenses decreased by 10.2% to RMB 779.7 million in 2024, due to improved utilization of technical resources[39] Capital and Funding - The company raised approximately HKD 3,160 million (equivalent to RMB 2,584 million) from the global offering, issuing 16,000,000 new shares[153] - 40% of the raised funds (HKD 1,264 million) is allocated to continue deepening community engagement, while another 40% is for innovation and enhancing technical capabilities[154] - 10% of the raised funds (HKD 316 million) is designated for selecting mergers, acquisitions, and strategic investments, particularly in content procurement, data, and audio technology[154] - The company plans to gradually utilize the remaining raised funds over the next 24 months as outlined in the prospectus[154] Corporate Governance and Compliance - The company has complied with all relevant laws and regulations during the reporting period, with no significant violations reported[98] - There were no major litigations or arbitrations involving the company during the reporting period[100] - The company has established a compensation committee to assist the board in formulating compensation policies for directors and senior management[105] - Independent non-executive directors have reviewed and confirmed that related party transactions during the reporting period comply with the listing rules[150] - The independent auditor confirmed no issues were found regarding related party transactions during the reporting period[151] Shareholder Information - As of December 31, 2024, the total number of issued shares is 216,722,361[180] - Mr. Ding Lei holds 129,365,718 shares, representing 59.69% of the company's equity[179] - The total number of shares held by major shareholders, excluding directors, is significant, with the largest being Mr. Ding's holdings[179] - The company has two active equity incentive plans: the 2016 Plan and the 2022 Restricted Share Unit Plan[183] - The 2022 Plan was adopted on August 18, 2022, and revised on June 15, 2023, replacing the 2016 Plan for new grants[183] - The purpose of the equity incentive plans is to align employee interests with those of shareholders and to attract and retain talent[184] Future Outlook - Future guidance indicates expected revenue growth of 20% for the upcoming quarter, driven by new product launches and market expansion[4] - The company plans to launch three new products in the next fiscal year, aiming to capture an additional 10% market share[3] - Overall, the company remains optimistic about achieving its long-term growth targets, with a focus on innovation and market leadership[10]

Core Viewpoint - NetEase Cloud Music has launched new features such as "Shen Guang Mode" player and "Colorful Skin" customization to enhance the visual experience for users while listening to music [1] Group 1 - The new features aim to provide a cooler and more colorful visual experience for users [1] - NetEase Cloud Music is focused on catering to different user needs by continuously developing practical and aesthetically pleasing product designs [1] - The company intends to offer more high-quality functional choices for its users [1]

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the online music industry, specifically analyzing the competitive landscape and performance of leading companies Tencent Music and NetEase Cloud Music [2][3][4]. Core Insights and Arguments 1. **Market Growth**: The online music market in China is projected to reach 20 billion RMB in 2024, with Tencent Music capturing over 15 billion RMB (26% growth YoY) and NetEase Cloud Music nearing 5 billion RMB (over 20% growth YoY) [3][6]. 2. **Competitive Landscape**: The market is characterized by a "one strong, one leading" structure, with Tencent Music holding 60-70% market share and NetEase Cloud Music 20-30%, indicating a stable competitive environment [3][6]. 3. **User Metrics**: As of the end of 2024, Tencent Music has a total MAU of 570 million and 120 million paying users (21% conversion rate), while NetEase Cloud Music has over 200 million MAU and 50-60 million paying users (over 25% conversion rate) [3][10]. 4. **Content Differentiation**: Tencent Music excels in K-pop licensing, while NetEase Cloud Music appeals to younger audiences with niche genres, highlighting the importance of content differentiation in competition [3][9]. 5. **Future Growth Potential**: The paid user rate in China's online music market is expected to reach 30-35%, translating to 250-300 million subscribers, indicating significant growth potential [3][12]. 6. **Profitability Forecast**: Tencent Music's adjusted profit is expected to reach 9 billion RMB in 2025 (17% growth), while NetEase Cloud Music's profit is projected at around 2 billion RMB, with both companies having room for valuation increases [3][23]. 7. **ARPU Trends**: Tencent Music's ARPU is 10.8 RMB, expected to rise to 11.8 RMB in 2025, driven by premium memberships. In contrast, NetEase Cloud Music's ARPU is below 7 RMB, necessitating strategic improvements to enhance revenue per user [13][20]. Additional Important Insights 1. **Cost Optimization**: Both companies have improved their gross margins through copyright cost optimization and increased self-produced content, with Tencent Music's gross margin at 42% and NetEase Cloud Music at 34% [16][20]. 2. **Non-Subscription Revenue**: Non-subscription revenue is performing well, with NetEase Cloud Music's non-subscription business growing by 28% and Tencent Music by 25%, indicating a shift towards ad-supported models [22]. 3. **Valuation Outlook**: Tencent Music is expected to have a valuation of around 19 times earnings, while NetEase Cloud Music is projected at less than 15 times, reflecting their respective market positions and growth prospects [24][25]. 4. **Future Challenges**: Both companies face challenges in maintaining user engagement and monetization strategies, particularly in light of regulatory changes affecting social entertainment segments [21][26]. This summary encapsulates the key points discussed in the conference call, providing a comprehensive overview of the online music industry's current state and future outlook.

Group 1 - The core issue revolves around a technical failure related to the NFC cards included with Li Ronghao's new album "Black Horse," which incorrectly redirected users to another artist's album page [1][2] - Li Ronghao publicly questioned why NetEase Cloud Music pursued this technology if they were unable to execute it properly, indicating a lack of confidence in the collaboration [2] - The supplier of the NFC cards, Classic Five (Beijing) Cultural Communication Co., Ltd., issued an apology to Li Ronghao and affected fans, taking full responsibility for the error [2] Group 2 - This incident is not the first quality controversy surrounding the "Black Horse" physical album, as Li Ronghao previously apologized for a typo in the album's lyric booklet [3][4] - NetEase Cloud Music, a core music streaming platform under NetEase, was listed on the Hong Kong Stock Exchange in December 2021 [5] - According to the 2024 financial report, NetEase Cloud Music generated a total revenue of 7.95 billion yuan, reflecting a year-on-year growth of 1.1%, with an adjusted net profit of 1.7 billion yuan, up 107.7% [5] - Revenue from online music services reached 5.35 billion yuan, marking a year-on-year increase of 23.1%, with subscription revenue contributing 4.46 billion yuan, a growth of 22.2% [6]

Investment Rating - The report maintains a "Buy" rating for NetEase Cloud Music (09899.HK) with a target price of HKD 167.81, equivalent to RMB 154.80 [4][9]. Core Views - The company is expected to benefit from the continuous optimization of its music library and the strengthening of its online music operations, leading to an increase in monthly active users (MAU) [4]. - The introduction of well-known Korean music labels and the promotion of original music are anticipated to enhance online music revenue, with projected net profits for 2024, 2025, and 2026 being RMB 1.56 billion, RMB 1.72 billion, and RMB 2.18 billion respectively [4]. - The report highlights a strategic shift towards core music business, with a reduction in social entertainment revenue due to a more cautious operational approach [4]. Financial Summary - Revenue for 2022 was RMB 8.995 billion, with a projected decline to RMB 7.867 billion in 2023, followed by a slight recovery to RMB 8.015 billion in 2024 [6][12]. - The company reported a net profit of RMB 734 million in 2023, with expectations of RMB 1.562 billion in 2024, reflecting a significant year-on-year growth of 112.7% [6][12]. - Gross margin is expected to improve from 26.7% in 2023 to 33.7% in 2024, driven by increased online music revenue and cost optimization measures [6][12]. Revenue Breakdown - Online music revenue is projected to reach RMB 28 billion in 2024, representing a year-on-year growth of 20%, primarily due to enhanced membership services and content offerings [9]. - Social entertainment revenue is expected to decline to RMB 11 billion in 2024, down 33% year-on-year, as the company focuses on its core music business [9]. Valuation Metrics - The report uses a comparable company analysis, suggesting an average adjusted P/E ratio of 20 times for 2025, which supports the target price of HKD 167.81 [4][10]. - The projected earnings per share (EPS) for 2024 is RMB 7.21, increasing to RMB 10.06 by 2026 [6][12].

Investment Rating - The report maintains a "Buy" rating for the company, with a target price of HKD 167.81 (CNY 154.80) based on a 20x adjusted P/E for comparable companies in 2025 [4][9]. Core Insights - The company is expected to benefit from the continuous optimization of its music library and the strengthening of its original music promotion, leading to an increase in online music MAU (Monthly Active Users) [4]. - The forecasted net profit for the company is projected to be CNY 1.56 billion, CNY 1.72 billion, and CNY 2.18 billion for the years 2024, 2025, and 2026 respectively, reflecting a significant increase from previous estimates due to better-than-expected music library additions [4][9]. Financial Performance Summary - **Revenue**: The company's revenue for 2022 was CNY 8.995 billion, with a projected decline to CNY 7.867 billion in 2023, followed by a slight recovery to CNY 8.015 billion in 2024, and further growth to CNY 8.262 billion in 2025 and CNY 9.158 billion in 2026 [6][12]. - **Net Profit**: The net profit for 2022 was a loss of CNY 221 million, with a turnaround to a profit of CNY 734 million in 2023, and projected profits of CNY 1.562 billion, CNY 1.716 billion, and CNY 2.179 billion for 2024, 2025, and 2026 respectively [6][12]. - **Earnings Per Share (EPS)**: EPS is expected to improve from a loss of CNY 1.02 in 2022 to CNY 3.39 in 2023, and further to CNY 7.21, CNY 7.92, and CNY 10.06 in the following years [6][12]. - **Gross Margin**: The gross margin is projected to increase from 14.4% in 2022 to 26.7% in 2023, reaching 33.7% in 2024 and continuing to rise to 38.5% by 2026 [6][12]. - **Net Margin**: The net margin is expected to shift from -2.5% in 2022 to 9.3% in 2023, with further improvements to 19.5%, 20.8%, and 23.8% in the subsequent years [6][12]. Market Performance - The company's stock performance over the past year shows a significant increase, with a 71.01% rise in December and a 31% increase over the past month [7].

Investment Rating - The report maintains a "Buy" rating for NetEase Cloud Music (9899.HK) and raises the target price to HKD 190, indicating a potential upside of 16% from the current price of HKD 163.2 [2][3][20] Core Insights - The company's revenue for 2H24 is projected at RMB 38.8 billion, a year-on-year decline of 2.0%, which is below market expectations by 3.3%. However, the gross margin improved by 3.6 percentage points to 32.4%, driven by growth in online music service revenue and optimized cost control. The adjusted net profit is expected to be RMB 8.2 billion, exceeding market expectations of RMB 5.9 billion, with an adjusted net profit margin increasing by 8.8 percentage points to 21.1% [1][2] - Online music services continue to show strong performance, with subscription revenue growing by 19% year-on-year. The 2H24 online music service revenue is expected to reach RMB 27.9 billion, reflecting a 20.0% year-on-year increase and a 7.9% quarter-on-quarter increase. The monthly active users (MAU) are steadily increasing, and the daily active users (DAU) to MAU ratio remains above 30%, indicating high user engagement and stickiness [1][2] - The social entertainment service segment is undergoing a strategic contraction, with revenue for 2H24 expected to be RMB 10.8 billion, down 33.4% year-on-year. The company is focusing on its core music business and has simplified its app to reduce distractions from non-core services. Despite the expected decline in social entertainment revenue, cost reductions are anticipated to mitigate the impact on overall profitability [2][3] Financial Projections - The report projects the following financial metrics for NetEase Cloud Music: - FY24 revenue: RMB 7.95 billion - FY25E revenue: RMB 8.08 billion - FY26E revenue: RMB 8.63 billion - FY27E revenue: RMB 9.16 billion - Adjusted net profit for FY25E: RMB 16.2 billion - Adjusted net profit for FY26E: RMB 18.1 billion - Target P/E for FY25E: 23.2x - Target P/E for FY26E: 20.8x [3][9]

交银国际研究 公司更新 | 互联网 | 收盘价 | | 目标价 | 潜在涨幅 | 2025 年 2 月 25 日 | | --- | --- | --- | --- | --- | --- | | 港元 | | 163.20 | 港元 184.00↑ | +12.7% | | | 网易云音乐 (9899 HK) | | | | | | 2024 下半年利润超预期；仍看好音乐付费长期增长潜力 | 财务数据一览 | | | | | | | --- | --- | --- | --- | --- | --- | | 年结12月31日 | 2023 | 2024 | 2025E | 2026E | 2027E | | 收入 (百万人民币) | 7,867 | 7,950 | 8,008 | 8,700 | 9,382 | | 同比增长 (%) | -12.5 | 1.1 | 0.7 | 8.6 | 7.8 | | 净利润 (百万人民币) | 819 | 1,700 | 1,819 | 2,021 | 2,228 | | 每股盈利 (人民币) | 3.86 | 8.06 | 8.52 | 9.46 | 10.43 | ...