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 ...

Financial Performance - Total revenues for Q2 2024 were RMB7.16 billion (US$985 million), a 1.7% year-over-year decrease, primarily due to a decline in social entertainment services revenues[1]. - Net profit for Q2 2024 was RMB1.79 billion (US$247 million), representing a 33.1% year-over-year growth[2]. - Total operating profit for Q2 2024 was RMB2.20 billion (US$302 million), a 42.8% year-over-year increase[13]. - The net profit attributable to equity holders for the period was RMB 1,682 million, reflecting a year-over-year increase of 29.6% from RMB 1,298 million[24]. - Tencent Music's non-IFRS net profit for the three months ended June 30, 2024, was RMB 1,985 million, up 25.0% from RMB 1,579 million in the same period of 2023[26]. - Basic earnings per share for Class A and Class B ordinary shares was RMB 0.54, compared to RMB 0.42 in the same quarter last year, marking a 28.6% increase[24]. Revenue Breakdown - Revenues from music subscriptions increased by 29.4% year-over-year to RMB3.74 billion (US$515 million), with paying users rising by 17.7% to 117.0 million[2]. - Revenues from online music services grew by 27.7% year-over-year to RMB5.42 billion (US$746 million)[10]. - Revenues from social entertainment services decreased by 42.8% to RMB1.74 billion (US$239 million) due to compliance adjustments and increased competition[11]. User Engagement and Growth - Monthly ARPPU for online music increased by 10.3% year-over-year to RMB10.7[4]. - The company launched new digital album offerings and enhanced user engagement through personalized privileges and advanced technology features[5][8]. - The company reported a total of 51.6 million monthly active users in its online music services segment as of June 30, 2024, a decrease from 45.6 million in the previous year[24]. Financial Position - Cash, cash equivalents, term deposits, and short-term investments totaled RMB35.03 billion (US$4.82 billion) as of June 30, 2024[15]. - The company has increased its financial assets at fair value through other comprehensive income to RMB 10,294 million as of June 30, 2024, from RMB 6,540 million at the end of 2023[28]. - Tencent Music's total assets grew to RMB 82,405 million as of June 30, 2024, compared to RMB 75,536 million at the end of 2023, indicating a growth of 9.8%[29]. - Total equity decreased from RMB 62,879 million to RMB 57,202 million, a decline of 9.7%[30]. - Total liabilities decreased from RMB 19,526 million to RMB 18,334 million, a decline of 6.1%[31]. Cash Flow - Net cash provided by operating activities increased from RMB 2,067 million to RMB 2,944 million, a growth of 42.4%[33]. - Net cash used in investing activities improved from a usage of RMB 1,339 million to a usage of RMB 693 million, a reduction of 48.3%[33]. - Cash and cash equivalents at the end of the period decreased from RMB 12,950 million to RMB 12,251 million, a decline of 5.4%[33]. Other Financial Metrics - Gross margin improved to 42.0%, up from 34.3% in the same period of 2023, driven by strong growth in music subscriptions and advertising[12]. - The gross profit for the same period was RMB 3,010 million, representing a gross margin of 42.0%, up from RMB 2,497 million and a gross margin of 34.3% in the prior year[24]. - Operating profit increased to RMB 2,198 million for the three months ended June 30, 2024, a growth of 43.0% year-over-year from RMB 1,539 million[24]. - Retained earnings increased from RMB 16,520 million to RMB 16,969 million, an increase of 2.7%[30]. - Non-controlling interests decreased from RMB 1,670 million to RMB 1,295 million, a decline of 22.4%[30]. - Current liabilities decreased from RMB 13,179 million to RMB 12,014 million, a decline of 8.8%[30]. - Total equity and liabilities decreased from RMB 82,405 million to RMB 75,536 million, a decline of 8.3%[31]. - Deferred revenue increased from RMB 2,952 million to RMB 2,854 million, a decline of 3.3%[30].

Revenue Performance - Total revenue for Q2 2024 was RMB 7.16 billion (USD 985 million), a year-over-year decrease of 1.7% primarily due to declines in social entertainment services and other services revenue, partially offset by strong growth in online music services revenue [3]. - Total revenue for Q2 2024 was RMB 7.16 billion (USD 985 million), a decrease from RMB 7.29 billion in Q2 2023 [7]. - Online music service revenue grew by 27.7% year-over-year to RMB 5.42 billion (USD 746 million), driven by a 29.4% increase in subscription revenue to RMB 3.74 billion (USD 515 million) [8]. - The total revenue for the six months ended June 30, 2023, was RMB 14,290 million, a 5.5% increase from RMB 13,550 million in the same period last year [18]. Profitability - Net profit for Q2 2024 was RMB 1.79 billion (USD 247 million), a year-over-year increase of 33.1%, while net profit attributable to equity holders was RMB 1.68 billion (USD 231 million), up 29.6% year-over-year [3]. - Operating profit for Q2 2024 increased by 42.8% year-over-year to RMB 2.20 billion (USD 302 million) [9]. - Non-IFRS net profit for the three months ended June 30, 2023, was RMB 1,348 million, representing a 10.5% increase compared to RMB 1,221 million in the same period last year [18]. - The company reported a net profit attributable to equity holders of RMB 1,298 million for the three months ended June 30, 2023, compared to RMB 1,100 million in the same period last year, marking a 17.9% increase [19]. User Metrics - Online music subscription revenue increased by 29.4% year-over-year to RMB 3.74 billion (USD 515 million), with the number of paid users growing by 17.7% to 117 million, and a net increase of 3.5 million users quarter-over-quarter [3]. - Monthly active users for online music services decreased by 3.9% year-over-year to 571 million, while mobile monthly active users for social entertainment services dropped by 31.6% to 93 million [5]. - The number of online music paying users increased by 17.7% year-over-year to 117 million, with an average revenue per paying user of RMB 10.7 [8]. Cash and Investments - As of June 30, 2024, the total balance of cash, cash equivalents, time deposits, and short-term investments was RMB 35.03 billion (USD 4.82 billion) [3]. - Cash and cash equivalents totaled RMB 35.03 billion (USD 4.82 billion) as of June 30, 2024, up from RMB 34.18 billion [12]. - The company reported cash and cash equivalents of RMB 12,251 million as of June 30, 2024, down from RMB 13,567 million as of December 31, 2023 [22]. - The net cash outflow from investing activities for the six months ended June 30, 2024, was RMB 4,805 million, compared to an outflow of RMB 528 million for the same period in 2023 [24]. Operating Expenses - Operating expenses decreased by 8.5% year-over-year to RMB 1.15 billion (USD 158 million), with a reduction in general and administrative expenses by 10.2% [9]. - The total operating costs for the three months ended June 30, 2023, were RMB 7,286 million, a slight decrease from RMB 7,300 million in the same period last year [18]. Future Outlook - The company expects continued growth in online music services and anticipates a recovery in social entertainment services in the upcoming quarters [17]. - The company plans to continue expanding its market presence and investing in new technologies and products to drive future growth [20]. Shareholder Returns - The company declared a cash dividend of USD 0.0685 per ordinary share, totaling USD 212 million, to be paid on June 2024 [11]. Asset and Liability Overview - The total assets of Tencent Music as of June 30, 2024, were RMB 82,405 million, an increase from RMB 75,536 million as of December 31, 2023 [22]. - Total liabilities increased to RMB 19,526 million as of June 30, 2024, from RMB 18,334 million as of December 31, 2023 [23]. - The company’s equity attributable to shareholders was RMB 62,879 million as of June 30, 2024, up from RMB 57,202 million as of December 31, 2023 [23].

Group 1 - Tencent Music Entertainment Group (TME) announced the resignation of Ms. Linlin Chen from her position as Group Vice President, effective September 30, 2024, for personal reasons [1] - The company expressed gratitude for Ms. Chen's dedicated service and contributions to the success of Kugou Music, a leading music streaming platform in China [1] - TME operates popular music apps including QQ Music, Kugou Music, Kuwo Music, and WeSing, aiming to create endless possibilities with music and technology [2] Group 2 - TME's platform includes online music, online audio, online karaoke, music-centric live streaming, and online concert services, allowing music fans to engage with music in various ways [2]

Core Viewpoint - Tencent Music Entertainment Group (TME) is set to report its unaudited financial results for Q2 2024 on August 13, 2024, before the U.S. market opens [1]. Group 1: Financial Reporting - TME will announce its financial results for the second quarter of 2024 on August 13, 2024 [1]. - A Tencent Meeting Webinar will be held on the same day at 7:00 A.M. Eastern Time or 7:00 P.M. Beijing/Hong Kong Time to discuss the Company's performance [1]. Group 2: Participation Details - Participants interested in joining the webinar must complete online registration in advance [2]. - A live and archived webcast of the webinar will be available on the Company's investor relations website [2]. Group 3: Company Overview - Tencent Music Entertainment Group is the leading online music and audio entertainment platform in China, operating popular music apps such as QQ Music, Kugou Music, Kuwo Music, and WeSing [3]. - The Company's mission is to create endless possibilities with music and technology, offering services that include online music, audio, karaoke, live streaming, and online concerts [3].

Core Points - Tencent Music Entertainment Group (TME) held its annual general meeting (AGM) in Hong Kong on June 28, 2024, where all proposed resolutions were passed [1] Company Overview - Tencent Music Entertainment Group is the leading online music and audio entertainment platform in China, operating popular music apps such as QQ Music, Kugou Music, Kuwo Music, and WeSing [2] - The company's mission is to create endless possibilities with music and technology, offering services that include online music, online audio, online karaoke, music-centric live streaming, and online concert services [2]

Investment Rating - The report maintains a "Buy" rating for Tencent Music (TME.N) [2][4] Core Views - The online music business is experiencing robust growth, with expectations for continued profit optimization in 2024 [2][10] - The company has a strong cash position, with cash and cash equivalents totaling 34.18 billion yuan as of March 2024, and has initiated a cash dividend distribution of 1.21 billion USD [2][10] - The adjusted net profit forecast for 2024-2026 has been raised, with expected figures of 7.462 billion, 8.586 billion, and 9.345 billion yuan respectively [2][10] Summary by Sections Financial Performance - In Q1 2024, Tencent Music reported total revenue of 6.77 billion yuan, a year-on-year decrease of 3.4% and a quarter-on-quarter decrease of 1.8% [5][6] - Online music revenue accounted for 74% of total revenue, with a significant year-on-year growth of 43% to 5.01 billion yuan [5][6] - The gross margin improved to 40.9%, up 7.9 percentage points year-on-year, driven by growth in subscription and advertising revenues, as well as improved returns on music copyright investments [5][6] User Growth and Subscription Business - The number of paid users for online music reached 114 million, a year-on-year increase of 20.2%, with a payment rate of 19.6%, up 3.7 percentage points [7][10] - The company is confident that the total net increase in subscriptions for 2024 will exceed previous forecasts, although it will be slightly lower than in 2023 due to base effect adjustments [7][10] Social Entertainment Business - The social entertainment and other revenue for Q1 2024 was 1.76 billion yuan, a year-on-year decline of 50% and a quarter-on-quarter decline of 6% [10] - The decline in social entertainment revenue is attributed to the company's proactive ecosystem adjustments, which resulted in a 55% year-on-year decrease in user ARPPU [10]

Core Viewpoint - Tencent Music Entertainment Group (TME) shows a significant improvement in earnings outlook, making it an attractive investment option as analysts continue to raise earnings estimates [1][2] Earnings Estimates - Current-quarter earnings estimate is projected at $0.17 per share, reflecting a year-over-year increase of +30.77% [3] - Over the past 30 days, the Zacks Consensus Estimate for TME has risen by 10.71%, with two estimates moving higher and no negative revisions [3] - For the full year, the earnings estimate stands at $0.68 per share, indicating a +28.3% change from the previous year [4] - The consensus estimate for the current year has increased by 6.9% due to two upward revisions and no negative changes [4] Zacks Rank - TME has achieved a Zacks Rank 2 (Buy), indicating strong potential for outperformance based on favorable estimate revisions [5] - Stocks with Zacks Rank 1 (Strong Buy) and 2 (Buy) have historically outperformed the S&P 500 [5] Stock Performance - TME's stock has increased by 14.4% over the past four weeks, driven by strong estimate revisions and positive analyst sentiment [6] - There is potential for further upside in the stock, suggesting it may be a good addition to investment portfolios [6]

Core Viewpoint - Tencent Music Entertainment Group Sponsored ADR (TME) is currently rated with a Momentum Style Score of A, indicating strong potential for momentum investing [2] Group 1: Momentum Characteristics - TME shares have increased by 15.59% over the past week, outperforming the Zacks Internet - Content industry, which rose by 3.27% during the same period [3] - Over the past month, TME's price change is 29.85%, significantly higher than the industry's 7.09% performance [3] - In the last quarter, TME shares rose by 46.54%, and over the past year, they have increased by 99.87%, while the S&P 500 only moved 7.06% and 28.36% respectively [4] Group 2: Trading Volume - TME's average 20-day trading volume is 8,342,564 shares, which serves as a bullish indicator when combined with rising stock prices [4] Group 3: Earnings Outlook - In the past two months, one earnings estimate for TME has increased, raising the consensus estimate from $0.62 to $0.64 for the full year, with no downward revisions [5] - For the next fiscal year, one estimate has also moved upwards, indicating positive sentiment [5] Group 4: Overall Assessment - TME is classified as a 2 (Buy) stock with a Momentum Score of A, suggesting it is a strong candidate for near-term investment opportunities [6][7]