SHENZHEN, China, May 13, 2024 /PRNewswire/ -- Tencent Music Entertainment Group ("TME," or the "Company") (NYSE: TME and HKEX: 1698), the leading online music and audio entertainment platform in China, today announced its unaudited financial results for the first quarter ended March 31, 2024 and declared its annual cash dividend for the year ended December 31, 2023. First Quarter 2024 Financial Highlights Total revenues were RMB6.77 billion (US$937 million), representing a 3.4% year-over-year decrease, mai ...

Share Structure and Voting Rights - Tencent Music Entertainment Group has a dual-class share structure, with Class A shares having one vote per share and Class B shares having fifteen votes per share[3]. - As of April 10, 2024, Tencent holds approximately 92.6% of the voting power through its ownership of 1,640,456,882 Class B shares and 159,996,879 Class A shares[6]. - The total number of outstanding shares is 3,432,154,260, comprising 1,767,205,005 Class A shares and 1,664,949,255 Class B shares[5]. - If all Class B shares were converted to Class A shares, Tencent would issue 1,664,949,255 Class A shares, representing about 94.2% of the total Class A shares outstanding[6]. - Tencent and Min River have committed to converting any Class B shares sold to non-affiliated entities into Class A shares prior to the transfer[7]. - EMI Group Limited holds 24,492,362 Class B shares, accounting for approximately 1.4% of the voting power[4]. - The early investors with nominal interests do not participate in the company's business and operations[6]. - The company has a total of thirteen different voting rights beneficiaries, with eight being early investors holding nominal interests[3]. - The voting rights of 18,581,530 Class A shares held by minority shareholders are also attributed to Tencent[5]. - The company is subject to the Hong Kong Stock Exchange rules regarding its dual-class share structure[3]. - The company has a dual-class share structure, with Tencent holding a significant proportion of voting rights, which may not align with the interests of all shareholders[8]. - The different voting rights structure allows Tencent and Min River to exert greater influence over company affairs and shareholder resolutions[8]. - Any changes in regulations or guidelines from the Hong Kong Stock Exchange could automatically invalidate the different voting rights commitments[8]. - The company emphasizes the potential risks for investors in companies with different voting rights structures, particularly regarding the alignment of interests[8]. Financial Performance and Growth - The company reported a significant increase in monthly active users, with a total of 100 million users across its online music services as of December 31, 2023, representing a 15% year-over-year growth[15]. - The average revenue per paying user for online music services reached RMB 12.50, an increase of 10% compared to the previous year[15]. - The paying user base for social entertainment services grew to 30 million, reflecting a 20% increase year-over-year[15]. - The company achieved a paying user conversion rate of 25% for its online music services, up from 22% in the previous year[15]. - Total revenue for the fiscal year 2023 was RMB 10 billion, marking a 12% increase from RMB 8.93 billion in 2022[15]. - The company anticipates a revenue growth guidance of 15-20% for the fiscal year 2024, driven by user growth and new service offerings[15]. - The company plans to expand its market presence in Southeast Asia, targeting a 30% increase in user acquisition in the region over the next year[15]. - New product launches, including enhanced features for its social entertainment platform, are expected to drive user engagement and revenue growth in 2024[15]. - Research and development investments increased by 15% in 2023, aimed at improving streaming technology and user interface[15]. Regulatory Environment and Compliance - The company faces significant regulatory risks from Chinese authorities that could impact its ability to operate and attract foreign investment[22]. - Recent regulatory developments include the establishment of the National Data Bureau on October 25, 2023, to oversee data security and privacy, impacting companies with significant user data[35]. - The Cybersecurity Review Measures require network platform operators with over 1 million users' personal information to undergo cybersecurity reviews before going public abroad[35]. - The Data Cross-Border Flow Regulations, effective March 22, 2024, mandate security assessments for data processors providing data overseas under certain conditions, including the transfer of personal information of over 1 million individuals[36]. - The China Securities Regulatory Commission issued new rules on February 17, 2023, regarding the overseas issuance of securities, effective March 31, 2023, impacting the listing requirements for companies[37]. - The implementation of the "Trial Measures" introduces uncertainty regarding the company's ability to conduct future financing activities and comply with filing requirements to the China Securities Regulatory Commission (CSRC)[39]. - The CSRC has clarified that companies listed overseas before March 31, 2023, will be considered as existing listed companies and are not required to complete immediate filing procedures[39]. - Regulatory measures on live streaming businesses have been strengthened, including real-name registration and restrictions on user tipping for minors[40]. - The company may need to adapt its growth strategy in response to evolving regulations affecting the social entertainment industry, which could negatively impact its business and financial performance[41]. - The company faces potential adverse effects on its operations and financial condition due to increased regulatory scrutiny on live streaming platforms and hosts[41]. Financial Reporting and Internal Controls - The company is classified as a large accelerated filer under the Securities Exchange Act[11]. - Tencent Music has adopted International Financial Reporting Standards for its financial statements[11]. - The company has submitted all required reports under the Securities Exchange Act in the past 12 months[11]. - Tencent Music is not classified as a shell company[11]. - The company has maintained effective internal controls over financial reporting as per the Sarbanes-Oxley Act[11]. - The report indicates that Tencent Music is not required to submit reports under Section 13 or 15(d) of the Securities Exchange Act[11]. - The company has not made any corrections to previously issued financial statements[11]. - The English version of the annual report takes precedence over the Chinese translation in case of discrepancies[9]. - The company reported effective internal controls over financial reporting as of December 31, 2023, but acknowledges potential future deficiencies[120]. Variable Interest Entities (VIEs) - Tencent Music Entertainment Group operates through variable interest entities due to restrictions on foreign investment in certain sectors in China[19]. - The company relies on contractual arrangements with variable interest entities to guide their economic performance and obtain most of the economic benefits[19]. - The company has a unique structure that allows it to consolidate the financial results of its variable interest entities into its financial statements[19]. - Revenue from variable interest entities accounted for 99.1%, 96.8%, and 96.5% of total net income for 2021, 2022, and 2023 respectively[21]. - As of December 31, 2022, and December 31, 2023, total assets of variable interest entities represented 26.5% and 24.1% of consolidated total assets[21]. - The company faces significant risks if it fails to predict user preferences and provide content that meets user needs, which could adversely affect user acquisition and retention[47]. - The enforceability of contracts with VIEs is uncertain under Chinese law, which may complicate the company's ability to guide VIE activities effectively[130]. - The company relies on contractual arrangements with VIEs for economic benefits, but these arrangements may not provide the same level of control as direct ownership[129]. - Any failure by VIEs or their partners to fulfill contractual obligations could significantly adversely affect the company's operations and financial performance[130]. Taxation and Dividend Distribution - The effective tax rate applied was 25%, leading to a net distribution to shareholders of 67.5% of the available profit[25]. - The company anticipates a potential double taxation scenario that could reduce post-tax income to approximately 50.6% of pre-tax income if certain tax strategies fail[26]. - Future dividend distributions will be determined by the board based on operational performance, cash flow, and other relevant factors[24]. - The company has not declared or paid any cash or stock dividends on its Class A ordinary shares or American depositary shares[24]. - Chinese subsidiaries must allocate at least 10% of their after-tax profits to statutory reserves until the total reaches 50% of their registered capital, potentially limiting available distributable profits for dividends[33]. - The company’s ability to pay dividends to shareholders and U.S. depositary share holders is contingent on the dividends paid by its Chinese subsidiaries, which face restrictions under Chinese laws[33]. Market Competition and Strategic Positioning - The competitive landscape of the online music and audio entertainment industry in China is a significant factor for the company's strategy[19]. - The company is focused on increasing revenue and managing content-related costs to improve operating profit margins[19]. - The company is exploring strategic acquisitions to bolster its content library and enhance user experience, with a focus on local music labels[15]. - The company faces significant competition globally, which raises the likelihood of facing intellectual property claims[60]. - The company relies on popular live streamers and key opinion leaders to attract user engagement, which is critical for maintaining platform appeal[74]. - The company is actively seeking non-exclusive partnerships with upstream copyright holders following regulatory mandates[71]. - The company is negotiating the renewal of its framework agreement with the music rights organization, which has expired, and this could affect its ability to secure favorable licensing agreements[65]. User Engagement and Content Strategy - The company’s live streaming service revenue primarily comes from the sale of virtual gifts, and recent regulatory scrutiny in China may negatively impact monetization opportunities[66]. - The company introduced a paid streaming model for its online music service in Q1 2019 and continues to increase the number of songs under this model, but future success is not guaranteed[66]. - The company must continuously provide high-quality user experiences and introduce attractive content to increase paid user numbers and willingness to pay[66]. - The company has invested heavily in content acquisition and production, but may struggle to find appealing content or recover investments in this area[55]. - The company faces potential legal liabilities if it fails to act promptly upon receiving proper notifications from rights holders regarding infringing content[58]. - The company has implemented comprehensive measures to reduce the likelihood of using or providing content without proper permissions, including requiring users to confirm they will not upload infringing content[58]. Cybersecurity and Data Protection - The company must conduct regular risk assessments of its data processing activities and report findings to regulatory authorities as mandated by the Data Security Law[93]. - The implementation of the "Cybersecurity Review Measures" on February 15, 2022, expands the scope of cybersecurity reviews to include network platform operators handling personal information of over 1 million users[95]. - The "Personal Information Protection Law" effective from November 1, 2021, consolidates various rules regarding personal information rights and privacy protection applicable to data processing activities within mainland China[94]. - The company has implemented measures to protect user data, but cannot guarantee absolute security against unauthorized access or data breaches[91]. - Compliance with evolving cybersecurity, information security, and data protection laws may be costly and could necessitate unfavorable changes to the company's operations[91]. Economic and Market Conditions - Future business development and financial performance are expected to be influenced by macroeconomic conditions in China and globally[19]. - The global macroeconomic environment remains challenging, with uncertainties stemming from geopolitical tensions and economic policies in major economies[103]. - Economic challenges in China or globally could have a significant adverse impact on the company's business and financial condition[48]. - The fluctuation of the RMB against the USD and other currencies may significantly adversely affect the company's operating performance and investment value[155]. - The company is exposed to risks from potential deposit losses and systemic failures in financial institutions, which could impact overall economic stability[104]. Legal and Litigation Risks - The company is involved in ongoing litigation and regulatory scrutiny that could distract management from daily operations and require substantial cash payments for settlements or damages[86]. - The company may face significant adverse impacts on its business, financial condition, operating performance, cash flow, and reputation due to potential collective securities lawsuits involving its directors and senior management[87]. - The company cannot guarantee that its insurance will cover all or part of the defense costs related to ongoing litigation[87]. - The company faces potential penalties and adverse effects on its business and financial condition if it fails to comply with ESG-related regulations[121]. - The company may face significant losses if its securities are delisted from the NYSE or if it fails to submit timely financial reports as required by the SEC[171]. Strategic Partnerships and Collaborations - The company is seeking long-term partnerships with content collaborators, including cooperation with other Tencent ecosystem companies in the pan-entertainment sector[90]. - The company heavily relies on its strategic partnership with Tencent, which holds 92.6% of the voting power, and any negative developments in Tencent's market position could impact the company's business[123]. - Tencent's brand recognition and user base significantly enhance the company's reputation and marketing effectiveness, making it vulnerable to any negative publicity related to Tencent[123]. - The company may need to seek alternative partnerships if it cannot maintain favorable terms with Tencent, potentially impacting its operational capabilities[123]. Shareholder and Investor Relations - The trading prices of the company's American depositary shares and Class A ordinary shares may experience volatility, potentially leading to significant losses for investors[53]. - The dual-class voting structure limits the influence of Class A common stock and American Depositary Share holders on company matters, granting significant power to certain shareholders[54]. - The sale or potential sale of a large number of Class A common stock and/or American Depositary Shares may adversely affect their trading price[54]. - The company’s ability to attract and retain key personnel may be affected by the increase in share-based compensation expenses[119]. - The company has authorized a total of 436,999,865 shares for equity incentive plans, with 44,799,126 restricted stock units and options for 42,048,774 Class A ordinary shares granted but not exercised as of April 10, 2024[119].

SHENZHEN, China, April 18, 2024 /PRNewswire/ -- Tencent Music Entertainment Group ("TME", or the "Company") (NYSE: TME and HKEX: 1698), the leading online music and audio entertainment platform in China, today announced that it has filed its annual report on Form 20-F that includes its audited financial statements for the fiscal year ended December 31, 2023 with the Securities and Exchange Commission (the "SEC") on April 18, 2024, U. S. Eastern Time. The annual report can be accessed on TME's investor relat ...

Financial Performance - In 2021, 2022, and 2023, revenues generated by the VIEs accounted for 99.1%, 96.8%, and 96.5% of total net revenues, respectively[16]. - Revenues for the year ended December 31, 2023, reached RMB 27,752 million, a slight increase from RMB 28,339 million in 2022[27]. - Gross profit for 2023 was RMB 9,795 million, compared to RMB 8,773 million in 2022, reflecting a growth of approximately 11.6%[27]. - Operating profit for 2023 was RMB 6,059 million, a significant increase from an operating loss of RMB 404 million in 2022[28]. - Profit for the year 2023 was RMB 5,220 million, up from RMB 3,839 million in 2022, indicating a year-over-year growth of about 36%[28]. - The Group's revenues for the year ended December 31, 2021, were RMB30,949 million, with a gross profit of RMB9,404 million[26]. - The operating profit for the Group was RMB3,800 million for the year ended December 31, 2021[26]. - Profit for the year for the Group was RMB3,215 million for the year ended December 31, 2021[26]. Assets and Liabilities - As of December 31, 2023, total assets of the VIEs represented 24.1% of the consolidated total assets[16]. - Total assets as of December 31, 2023, amounted to RMB 75,536 million, compared to RMB 67,009 million in 2022, representing an increase of approximately 12.5%[30]. - Total liabilities for 2023 were RMB 18,334 million, a slight increase from RMB 17,882 million in 2022[30]. - Total equity as of December 31, 2023, was RMB 57,202 million, up from RMB 49,127 million in 2022, indicating a growth of about 16.4%[30]. - Cumulative capital contributions made by Tencent Music Entertainment Group to PRC subsidiaries amounted to RMB1,177 million (US$166 million) as of December 31, 2023[19]. Cash Flow - For the year ended December 31, 2023, the net cash inflow from operating activities was RMB 7,337 million, an increase from RMB 7,481 million in 2022[34]. - The net cash outflow from investing activities for 2023 was RMB (1,863) million, compared to RMB (1,446) million in 2022[34]. - The net cash outflow from financing activities in 2023 was RMB (1,538) million, a decrease from RMB (3,419) million in 2022[34]. - The company reported cash and cash equivalents of RMB 13,567 million for 2023, compared to RMB 9,555 million in 2022, reflecting a significant increase of approximately 42%[30]. - Cash and cash equivalents at the end of 2023 totaled RMB 13,567 million, up from RMB 9,555 million at the end of 2022[34]. Regulatory Environment - The company faced restrictions under PRC laws regarding the payment of dividends, which may affect its ability to distribute profits to shareholders[37]. - The National Data Bureau was established in 2023 to oversee data-related regulations, impacting the company's operations in data privacy and cybersecurity[40]. - The company is subject to new regulations regarding cross-border data flows, which may affect its international operations and data management strategies[42]. - The China Securities Regulatory Commission (CSRC) introduced new filing requirements for PRC domestic companies seeking to list overseas, effective March 31, 2023, impacting companies with over 50% of revenue from PRC operations[44]. - The revised Anti-Monopoly Law, effective August 1, 2022, imposes stricter regulations on internet platforms and can result in fines up to 10% of the operator's last year's sales revenue for monopolistic conduct[52]. Legal and Compliance Risks - The company faces risks related to user preferences; failure to anticipate these changes could lead to reduced user engagement and negatively impact financial results[63]. - The company may not have obtained complete licenses for certain copyrights, which could expose it to potential disputes and liabilities[69]. - The company is subject to uncertainties regarding the enforcement of laws and regulations in China, which could materially impact its operations[60]. - The company may face challenges in sourcing high-quality content, which could affect its ability to attract and retain users[64]. - The company has been involved in litigation related to copyright infringement claims, which could adversely affect its business and financial condition[77]. Market and Competitive Landscape - The company operates in a competitive industry, facing challenges from other online music services and emerging content forms like live streaming and user-generated videos[101]. - The online music and audio entertainment market is rapidly evolving, and the company must keep pace with technological changes and user behavior to avoid adverse impacts on its business[91]. - The company relies on strong brands like QQ Music, Kugou, Kuwo, WeSing, and Lazy Audio to maintain market leadership, emphasizing the importance of high-quality content and service offerings[89]. Strategic Initiatives - The company has launched a full suite of AI-powered music production tools in 2023, integrating AI into its offerings, which may lead to potential infringement claims and higher compliance costs[122]. - The company aims to increase the number of paying users by addressing challenges such as providing high-quality content and user experience, curating engaging content, and managing data security risks[88]. - The company has implemented measures to reduce copyright infringement risks, including requiring user agreements and adopting "notice and take-down" policies[74]. Shareholder and Governance Issues - As of April 10, 2024, Tencent holds 9.1% of the company's Class A ordinary shares and 98.5% of Class B ordinary shares, representing 92.6% of total voting power, which may lead to conflicts of interest and influence over shareholder actions[183]. - The company has authorized the issuance of up to 436,999,865 shares under its equity incentive plans, which may result in shareholding dilution for existing shareholders[176]. - The effectiveness of the company's internal control over financial reporting was confirmed as of December 31, 2023, but future audits may reveal material weaknesses that could impact investor confidence[178]. Economic and Operational Risks - Economic conditions in China are sensitive to global economic changes, and any severe slowdown could adversely affect the company's financial condition[155]. - The company's business prospects are significantly influenced by China's economic, political, and social conditions, as well as government policies[211]. - Adverse changes in economic conditions or regulatory policies in China could negatively impact the company's demand for services and competitive position[212].

The China-based company is on its way to repurchasing billions worth of sharesOptions traders are targeting Tencent Music Entertainment Group (NYSE:TME) today, as the stock jumps to its highest level since July 2021. The China-based company yesterday repurchased 3.27 million shares for $1 billion, after last month announcing its intention to buy back a minimum of $12.8 billion this year. The stock also got a boost last week after boosting its advertising business with artificial intelligence (AI). So far to ...

Investment Rating - The report maintains a "Buy" rating for the company, with a target price of HKD 43.74 (CNY 39.67) for 2024 [2][4]. Core Insights - In Q4 2023, the company's revenue was CNY 6.89 billion, representing a year-over-year decline of 7.2% but a quarter-over-quarter increase of 4.9%. For Q1 2024, revenue is expected to reach CNY 6.5 billion, reflecting a year-over-year decline of 7.3% and a quarter-over-quarter decrease of 5.8% [1]. - The gross margin for Q4 2023 was 38.3%, an increase of 5.4 percentage points year-over-year and 2.7 percentage points quarter-over-quarter, driven by strong growth in music subscription and advertising services [1]. - The adjusted net profit for Q4 2023 was CNY 1.58 billion, showing a year-over-year increase of 9.5% and a quarter-over-quarter increase of 11.9% [1]. Revenue Breakdown - Online music services generated CNY 5.02 billion in Q4 2023, a year-over-year increase of 41.1% and a quarter-over-quarter increase of 10.3%. The revenue for Q1 2024 is projected to be CNY 4.79 billion, with an expected annual growth of 25% for 2024 [1]. - Social entertainment services generated CNY 1.87 billion in Q4 2023, a significant year-over-year decline of 51.7% and a quarter-over-quarter decline of 7.2%. The revenue for Q1 2024 is expected to be CNY 1.71 billion, with an anticipated annual decline of 34% for 2024 [1]. Financial Forecasts - The company’s net profit is projected to be CNY 4.9 billion in 2023, CNY 5.7 billion in 2024, and CNY 6.9 billion in 2025, reflecting adjustments in tax rate assumptions [2]. - The report anticipates continued improvement in profit margins due to the increasing share of paid music subscriptions and ARPU growth [2]. Key Financial Metrics - The company’s revenue for 2023 is estimated at CNY 27.75 billion, with a projected growth of 3.0% in 2024 and 6.0% in 2025 [3]. - The gross margin is expected to improve from 35.3% in 2023 to 40.4% in 2024 and 43.1% in 2025 [3]. - The net profit margin is projected to increase from 17.7% in 2023 to 19.9% in 2024 and 22.7% in 2025 [3].

Investment Rating - The investment rating for Tencent Music (TME.N) has been upgraded to "Buy" [2][5][15] Core Insights - The online music business is experiencing robust growth, with an expected year-on-year increase of 25% in 2024. The company is also expected to continue improving its operational capabilities, leading to higher gross and profit margins [2][15] - As of December 2023, the company has a strong cash position, with cash and cash equivalents totaling 32.2 billion yuan [2][15] - The adjusted net profit forecast for 2024-2026 is set at 7 billion, 7.9 billion, and 8.8 billion yuan respectively, reflecting an upward adjustment of 3% to 5% [2][15] Summary by Sections Financial Performance - In Q4 2023, Tencent Music reported total revenue of 6.89 billion yuan, a year-on-year decrease of 7.2% but a quarter-on-quarter increase of 4.9%. Online music revenue accounted for 73% of total revenue [1][6] - The gross margin for Q4 2023 was 38.3%, up 5.4 percentage points year-on-year and 2.7 percentage points quarter-on-quarter. This increase is attributed to higher ARPPU in online music and growth in high-margin advertising business [1][6] - The adjusted net profit for Q4 2023 was 1.68 billion yuan, representing a year-on-year increase of 12.5% [1][6] Online Music Business - Online music revenue reached 5.02 billion yuan in Q4 2023, marking a year-on-year increase of 41%. Subscription revenue alone was 3.4 billion yuan, up 46% year-on-year [1][9] - The monthly ARPPU for online music was 10.7 yuan, reflecting a year-on-year increase of 20.2% [1][10] - The subscription payment rate reached 18.5%, an increase of 2.9 percentage points year-on-year, with the number of paid users growing by 20.6% [1][9] Social Entertainment Business - Social entertainment and other revenue totaled 1.87 billion yuan in Q4 2023, down 52% year-on-year. The monthly ARPPU for social entertainment was 78 yuan, a decrease of 54% year-on-year [1][12] - The company anticipates a narrowing of revenue decline in the social entertainment segment in 2024, expecting quarterly revenue to stabilize around 1.7 billion yuan [1][12]

Investment Rating - The report maintains a "Buy" rating for Tencent Music (TME) with a target price of $13.16 per ADS, equivalent to HKD 51.45 per share [4][30]. Core Insights - Tencent Music's Q4 2023 total revenue reached RMB 6.89 billion, exceeding consensus expectations by 3% [2][8]. - The gross margin for Q4 2023 was 38.3%, reflecting a year-over-year increase of 5.4 percentage points [2][24]. - Non-GAAP net profit for Q4 2023 was RMB 1.575 billion, showing a year-over-year growth of 10% [2][13]. - The music business revenue grew significantly, with subscription revenue reaching RMB 3.42 billion, a 45% year-over-year increase [2][13]. Summary by Sections Financial Performance - Q4 2023 total revenue was RMB 6.89 billion, with a year-over-year decline of 7% but a quarter-over-quarter increase of 5% [2][8]. - Gross margin improved to 38.3%, up 5.4 percentage points year-over-year [2][24]. - Non-GAAP net profit was RMB 1.575 billion, with a net profit margin of 22.8% [2][13]. Music Business Growth - Music revenue for Q4 2023 reached RMB 5 billion, a 41% increase year-over-year [2][13]. - Subscription revenue was RMB 3.42 billion, with a total membership of 106.7 million, reflecting a 21% year-over-year growth [2][13]. - Monthly ARPU increased to RMB 10.7, up 20% year-over-year [2][13]. Advertising and Other Revenue - Other revenue, primarily from advertising, was RMB 1.6 billion, showing a 33% year-over-year increase [2][18]. - The social entertainment segment generated RMB 1.871 billion, down 52% year-over-year, indicating a stabilization after adjustments [2][21]. Future Projections - Revenue forecasts for 2024 and 2025 are RMB 28.6 billion and RMB 33.1 billion, representing growth rates of 3.1% and 15.7% respectively [2][28]. - Adjusted net profit for 2024 and 2025 is projected at RMB 6.825 billion and RMB 8.258 billion, with growth rates of 15.2% and 21.0% [2][28]. - The report anticipates continued growth in the music business driven by increased subscription and advertising revenues [2][28].

Executive Changes - Mr Zhenyu Xie has resigned from his executive positions as President, Chief Technology Officer, and board member, effective March 31, 2024, for personal reasons [1] - Mr Xie will continue to serve as a consultant to the company [1] - Ms Min Hu (Shirley Hu), the Chief Financial Officer, has been appointed as a director of the company, effective March 31, 2024 [1] Leadership Background - Ms Min Hu has over 20 years of experience in finance, including financial management, capital operations, mergers and acquisitions, and internal control [2] - Prior to joining Tencent Music Entertainment, Ms Hu held various controller roles in Tencent's business groups from 2007 to 2016 and served as the director of internal audit at Huawei Technologies [2] - Ms Hu holds professional certifications including CIMA, CPA Australia, CICPA, and CIA, and holds degrees in Industrial Foreign Trade and Systems Engineering [2] Company Overview - Tencent Music Entertainment Group is the leading online music and audio entertainment platform in China, operating popular apps such as QQ Music, Kugou Music, Kuwo Music, and WeSing [3] - The company's platform includes online music, audio, karaoke, live streaming, and online concert services, enabling users to discover, listen, sing, watch, perform, and socialize around music [3]

Investment Rating - The investment rating for Tencent Music (TME US) is "Buy" with a target price of $13.00, indicating a potential upside of 17.8% from the current price of $11.04 [1][7]. Core Insights - Tencent Music's Q4 2023 performance exceeded expectations, with total revenue of 6.89 billion RMB, a year-on-year decline of 7%, primarily due to adjustments in the social entertainment segment, which saw a 52% decrease [1][2]. - The adjusted net profit for Q4 2023 was 1.7 billion RMB, representing a 12% increase year-on-year, which was higher than both the report's and market's expectations [1][2]. - The online music segment showed strong growth, with revenue of 5.02 billion RMB, a year-on-year increase of 41%, driven by a 45% increase in music subscription revenue [2][5]. Summary by Sections Financial Performance - Q4 2023 total revenue was 6.89 billion RMB, down 7% year-on-year, but better than the market expectation of a 10% decline [5]. - Online music revenue reached 5.02 billion RMB, up 41% year-on-year, accounting for 73% of total revenue [2][5]. - The adjusted net profit for Q4 2023 was 1.7 billion RMB, with an adjusted net profit margin of 24% [1][5]. Membership and Revenue Growth - The number of music subscribers reached 107 million, with a net increase of 3.7 million in Q4 2023, resulting in a payment rate of 18.5% [2][5]. - Monthly ARPPU (Average Revenue Per Paying User) increased to 10.7 RMB, reflecting a 20% year-on-year growth [2][5]. - The report forecasts a 37% increase in music subscription revenue for Q1 2024 and a 25% increase for the full year [2][6]. Cost and Profitability - Gross margin improved to 38% in Q4 2023, benefiting from increased subscription and advertising revenues [1][5]. - The report anticipates a further increase in gross margin to 40% in 2024 due to better cost optimization in online music [2][6]. - The adjusted net profit for 2024 is projected to be 6.62 billion RMB, with a corresponding adjusted net profit margin of 23% [8]. Valuation and Market Outlook - The target price for Tencent Music has been raised to $13.00 based on a comparable music and copyright company average P/E ratio of 20x for 2024 [2][8]. - The company continues to see growth potential in music membership over the next two years, supported by scale effects and increased self-produced content [2][6].