Investment Rating - The investment rating for Tencent Music (TME.N) is "Outperform the Market" [5][27]. Core Views - Tencent Music's online music business is experiencing steady growth, with a revenue increase of 20.6% year-on-year in Q3 2025, reaching 8.46 billion yuan. The adjusted profit margin also improved by 1.6 percentage points year-on-year [1][9]. - The company is expanding into the broader music sector, which is expected to drive future growth. The focus for 2026 will be on investments in this area, including the acquisition of Himalaya, which is anticipated to enhance ARPPU and contribute to profit growth [3][25]. - The subscription business is showing strong performance, with a 17.2% year-on-year revenue growth in Q3 2025, and the monthly ARPPU increased by 10.2% year-on-year to 11.9 yuan [2][17]. Summary by Sections Financial Performance - In Q3 2025, Tencent Music achieved total revenue of 8.46 billion yuan, a year-on-year increase of 20.6% and a quarter-on-quarter increase of 0.2%. Online music revenue accounted for 82% of total revenue [1][9]. - The gross margin for Q3 2025 was 43.5%, up 0.9 percentage points year-on-year but down 0.9 percentage points quarter-on-quarter, primarily due to the development of offline events [1][9]. - Adjusted net profit for Q3 2025 was 2.48 billion yuan, reflecting a year-on-year increase of 27.7% [1][9]. Subscription Business - The subscription revenue reached 4.5 billion yuan in Q3 2025, growing 17.2% year-on-year, with a net increase of 1.3 million paying users, resulting in a payment rate of 22.8% [2][17]. - The number of online music paying users was 126 million, an increase of 5.6% year-on-year [2][17]. Other Online Music Revenue - Other online music services, including advertising and digital albums, generated 2.47 billion yuan in revenue, a significant year-on-year increase of 50.5% [2][21]. - The advertising business is expanding its product offerings, and offline events, such as concerts, are contributing to revenue growth [2][21]. Social Entertainment Business - Revenue from social entertainment and other services was 1.49 billion yuan in Q3 2025, showing a decline of 2.7% year-on-year, but the decline is narrowing [2][24]. Financial Forecasts - The adjusted net profit forecasts for 2025-2027 are 9.6 billion, 10.9 billion, and 12.2 billion yuan, respectively, with a slight downward adjustment of 1-4% [3][25]. - The company is expected to maintain a strong market position with significant growth potential in the broader music sector [3][25].

Investment Rating - The report maintains a "Buy" rating for Tencent Music [4][6]. Core Views - The growth of the fan economy is expected to accelerate, leading to an increase in the company's membership ARPPU due to the rising proportion of SVIP bundled packages [4]. - The projected net profits for the years 2025 to 2027 are estimated at 11.2 billion, 10.1 billion, and 11.4 billion CNY respectively, with adjustments made to previous forecasts based on financial report updates [4]. - A target price of 87.50 HKD (approximately 79.74 CNY) is set for 2026, based on a P/E ratio of 24 times [4]. Financial Performance Summary - For Q3 2025, Tencent Music reported revenue of 8.463 billion CNY, a year-on-year increase of 21%, exceeding Bloomberg's expectations by 2.8% [11]. - The gross margin for Q3 2025 was 43.5%, up 0.9 percentage points year-on-year, driven by growth in music subscription and advertising service revenues [11]. - The adjusted net profit attributable to shareholders for Q3 2025 was 2.41 billion CNY, a 33% increase year-on-year, also surpassing Bloomberg's expectations by 3.7% [11]. - Online music revenue reached 6.97 billion CNY in Q3 2025, reflecting a 27% year-on-year growth, with membership revenue contributing 4.49 billion CNY, an 18% increase [11]. - The ARPPU for Q3 2025 was 11.9 CNY/month, a 12% increase year-on-year, with expectations for further growth in Q4 2025 [11]. Revenue Breakdown - Non-subscription revenue for Q3 2025 was 2.48 billion CNY, a significant 48% increase year-on-year, attributed to strong performance in concerts and innovative advertising formats [11]. - Social entertainment revenue for Q3 2025 was 1.49 billion CNY, a slight decrease of 2.7% year-on-year, but is expected to stabilize in Q4 2025 [11]. Future Projections - The report anticipates that the fan economy will continue to drive revenue growth, with expectations for Q4 2025 total revenue to reach approximately 8.45 billion CNY, maintaining high year-on-year growth [11]. - The projected revenue for 2025 is 32.706 billion CNY, with a year-on-year growth rate of 15.2% [14].

Market Overview - The Hang Seng Index rose by 1.26% this week, with a trading volume of HKD 1.16 trillion[1] - The Hang Seng Technology Index decreased by 0.42%, while the Hang Seng China Enterprises Index increased by 1.41%[1] - Net inflow from southbound trading was HKD 22.6 billion this week, totaling HKD 1,214.3 billion year-to-date, which is 164.5% of the total net inflow for 2024[1] Sector Performance - The top two performing sectors this week were Consumer Staples and Paper & Packaging, with weekly gains of 10.27% and 6.66% respectively[1] - Notable stocks in the Consumer Staples sector included Jiangsu Hongxin, Alpha Enterprises, and JD Health, with increases of 13.21%, 11.54%, and 6.59% respectively[1] - Other strong performing sectors included Pharmaceuticals & Biotechnology (5.4%) and Durable Goods (5.03%)[1] AI Developments - GPT-5.1 was officially released on November 13, featuring enhanced models for improved communication and reasoning capabilities[2] - Baidu launched the Wenxin 5.0 model, which supports multimodal input and output, boasting over 2.4 trillion parameters[2] Company Earnings - Tencent reported Q3 2025 revenue of HKD 192.9 billion, a 15% year-on-year increase, with a net profit of HKD 63.1 billion, up 19%[8] - JD Group achieved Q3 2025 revenue of HKD 299.1 billion, a 14.9% increase year-on-year, but net profit fell to HKD 5.3 billion from HKD 11.7 billion in the previous year[8] - Bilibili's Q3 2025 revenue was HKD 7.69 billion, a 5% increase, with adjusted net profit soaring 233% to HKD 0.79 billion[8] Investment Recommendations - The report suggests focusing on platform-based internet companies with computational resources and model capabilities, including Tencent, Kuaishou, Alibaba, Xiaomi, Baidu, and Meituan[4] - AI ecosystem companies with model or application capabilities are also recommended, such as Qunar, Meitu, JD Health, and Zhihu[4] Risks - Geopolitical risks may impact overseas revenue and competitiveness, potentially affecting stock prices[26] - Regulatory risks in the internet sector could influence industry and individual stock performance[26] - Consumer recovery may not meet expectations, posing a risk to the consumer sector[26]

Core Viewpoint - The company reported a slight beat in Q3 2025 earnings, driven by strong performance in non-subscription music business [1][2] Performance Review - Q3 2025 revenue reached 8.46 billion yuan, a year-on-year increase of 20.6% - Non-IFRS net profit attributable to the parent company was 2.41 billion yuan, up 32.6%, slightly above the expected 2.30 billion yuan, mainly due to better-than-expected performance in non-subscription music [1] Development Trends - Subscription business shows profitability resilience, while non-subscription business has significant growth potential - Subscription Revenue: Q3 2025 revenue increased by 17.2% to 4.49 billion yuan, with paid users increasing by 1.3 million to 126 million, and ARPPU rising by 10.2% to 11.9 yuan/month. Expected growth in Q4 2025 includes an additional 1.3 million paid users and ARPPU rising to 12.1 yuan/month [1] - Non-Subscription Revenue: Q3 2025 revenue surged by 50.3% to 2.48 billion yuan, with concert and artist economy revenues growing rapidly. The company anticipates a 35.7% year-on-year revenue growth for the full year [1] Profitability and Valuation - Q3 2025 gross margin decreased by 0.9 percentage points to 43.5%, with stable sales expenses and a 5.3% year-on-year increase in management expenses. The company indicated that investments in offline performances and IP economy are crucial for long-term growth [2] - The company maintains a "one body, two wings" strategy to explore the full value of the industry chain, enhancing collaboration with global record companies and innovating product functions and services [2] - Adjustments to profit forecasts for 2025 and 2026 reflect new business growth and potential investments, with Non-IFRS net profit estimates revised to 9.63 billion yuan and 10.75 billion yuan respectively. Current P/E ratios for US and Hong Kong stocks are 24/21 times and 25/22 times for 2025/2026 [2]

Core Viewpoint - The application "Changba," developed by Beijing Xiaochang Technology Co., Ltd., has been highlighted in a recent official report for violating user privacy by illegally collecting personal information, which has reignited public scrutiny of the app [1][3][5]. Group 1: User Privacy Violations - Changba was named in a report by the Ministry of Industry and Information Technology for "illegally collecting personal information," alongside 39 other apps [1][3]. - The app's data collection practices extend to sensitive information in a vehicle environment, including user location and in-car conversations, raising the severity of its violations [2][5]. - The app's privacy policy includes the collection of facial features, fingerprints, bank account details, and voice data, as well as permissions to access the user's contacts [3][5]. Group 2: User Complaints and Customer Service Issues - As of November 14, 2025, Changba has received a total of 629 complaints on the Black Cat Complaints platform, with issues ranging from unauthorized charges to poor customer service [6][10]. - Users have reported being charged for services they did not use, and complaints about unresponsive customer service have been prevalent [10][11]. Group 3: Competitive Landscape and Market Position - Changba's initial success was marked by rapid user growth, reaching over 1 million users within a week of its launch in 2012, but it has since struggled against competitors like Tencent's "Quanmin Kge" [14][18]. - The competitive pressure from Quanmin Kge, which benefits from a larger user base and better music licensing, has significantly impacted Changba's market share [17][18]. - Despite attempts to innovate and expand into offline KTV and other areas, Changba has not achieved its growth targets and has seen a decline in user engagement [20][25]. Group 4: Future Challenges and Opportunities - The company faces the challenge of balancing data collection with user privacy, especially as it seeks to expand into new areas like smart vehicles and the metaverse [27][29]. - Changba's recent focus on enhancing audio-visual interaction technology aims to create an immersive karaoke experience, but results have yet to show significant improvement [27][29]. - The need for Changba to redefine its unique market position and regain user trust is critical for its survival in a competitive landscape [29][30].

Core Insights - The traditional business model of music streaming platforms, which relies on a vast library of copyrighted content and subscription fees, is facing structural collapse due to the rise of AI-generated music [1][3][4]. Group 1: Impact of AI on Copyright - The scarcity of music copyrights, which has allowed platforms like TME and NetEase Cloud to charge subscription fees, is being undermined by AI music, which can produce industry-level content without the need for traditional music production processes [5][6]. - AI-generated music does not depend on record labels or copyright institutions, leading to a situation where the value of music copyrights diminishes, threatening the core business model of platforms like TME and Spotify [9][10]. Group 2: User Behavior Shift - The transition from "listening" to "generating" music means that TME is now competing not only with similar platforms but also with tech companies that excel in disruptive innovation and have access to larger user bases [10][12]. - TME's recent performance shows a decline in active users and a slowdown in the growth of paying subscribers, indicating a shift in user behavior towards AI-generated music [10][11]. - The traditional music consumption path is being replaced by a new model where users can generate music based on their emotions or preferences, which could lead to a decline in the need for subscription-based streaming services [16][19]. Group 3: Future of the Music Industry - The future music industry is likely to be dominated by models and algorithms that can provide unlimited personalized content, marginalizing platforms that cling to outdated business models [22]. - The emergence of AI music signifies the end of an era dominated by copyright scarcity, suggesting a fundamental shift in the music industry's structure [19][22].

Core Viewpoint - Tencent Music (TME.US) is expected to halt a three-day decline in stock price, with a pre-market increase of 1.34%. Despite exceeding Q3 performance expectations, concerns over competition, particularly from ByteDance's subsidiary, are pressuring the stock. Citigroup maintains a "Buy" rating, highlighting TME's transition towards a more robust social music ecosystem, which may initially impact gross margins but is expected to drive sustainable growth in the long term [1]. Group 1 - Tencent Music's stock price increased by 1.34% in pre-market trading, indicating a potential end to a three-day decline [1]. - Citigroup's report emphasizes that despite strong Q3 results, market concerns about competition are affecting TME's stock performance [1]. - The report suggests that TME is evolving into a higher barrier social music ecosystem, which may initially affect gross margins due to investments in live concert operations [1]. Group 2 - TME's stock closed at $18.680, with a pre-market price of $18.930, reflecting a change of +0.250 [2]. - The stock's trading volume was 15.259 million, with a market capitalization of $28.934 billion [2]. - TME's 52-week high and low are $26.700 and $10.132, respectively, indicating significant volatility in its stock price [2].

Core Viewpoint - Jianyin International's report indicates that Tencent Music's Q3 revenue and non-GAAP net profit exceeded market expectations by 3% and 4% respectively, with strong performance in non-subscription music services [1] Group 1: Financial Performance - Tencent Music's Q3 revenue and non-GAAP net profit surpassed market expectations by 3% and 4% respectively [1] - The company is expected to continue investing in offline events and artist merchandise to enhance its online and offline integrated music ecosystem, which may pressure profit margins in the short term [1] Group 2: Future Outlook - By 2026, Tencent Music is anticipated to maintain its leadership position and sustainable profitability due to its differentiated business model, quality content supply, user base, and diversified revenue sources [1] - The company is rated "Outperform" with a target price of HKD 105.7 for H-shares and USD 27.1 for US shares, corresponding to a projected P/E ratio of 28 times for 2026, which is a 40% discount compared to global leader Spotify [1] - The recent decline in stock price is viewed as a good entry point for investors [1]

Core Viewpoint - Citigroup's research report indicates that Tencent Music's Q3 revenue and profit exceeded expectations, with a positive outlook for Q4, despite a decline in stock price post-earnings due to investor caution stemming from competition with ByteDance [1] Group 1: Financial Performance - Tencent Music's Q3 revenue and profit surpassed market expectations [1] - The company is expected to maintain a positive outlook for Q4 [1] Group 2: Market Sentiment - The decline in Tencent Music's stock price is attributed to investor risk aversion and caution regarding competition from ByteDance [1] - Citigroup views the recent sell-off as unfounded and sees it as an opportunity for further investment [1] Group 3: Strategic Positioning - Tencent Music is gradually transforming its operational knowledge in the music industry into enhanced capabilities for a comprehensive music ecosystem [1] - The company aims to diversify user streaming experiences and increase revenue through multiple monetization channels, fostering artists and music talent [1] Group 4: Competitive Advantage - Tencent Music attracts a different quality of users compared to its peers [1] - The integration of Tencent's gaming and film IPs enhances the company's value proposition for users and artists [1] - Citigroup reaffirms a "Buy" rating and maintains a target price of $29 for the stock [1]

Core Viewpoint - Tencent Music is responding to competitive pressure from ByteDance's "Soda Music" by expanding its premium membership offerings and enhancing its offline concert business to create new growth engines [1][4]. Group 1: Strategic Response - Citi's report highlights that the market's sell-off of TME shares is an overreaction to competitive concerns, presenting a buying opportunity [3][4]. - TME's strategy focuses on a multi-tiered membership system designed to enhance user value and retention rather than engaging in a price war [4][5]. Group 2: Membership and Revenue Growth - The multi-tiered membership service, including SVIP memberships, is expected to drive growth in paying users and ARPPU (Average Revenue Per Paying User) through high-quality music content and exclusive concert privileges [5][6]. - TME aims to provide more exclusive benefits and products based on fan economy, which will help boost SVIP subscriptions [7]. Group 3: Offline Concert Strategy - TME is heavily investing in large-scale tours and proprietary IP events, which not only generate new revenue streams but also deepen collaborations with artists, creating an online-offline ecosystem [6][8]. - The concert business enhances user experience and fosters stronger relationships within the music ecosystem [7]. Group 4: Competitive Advantages - TME's management expresses confidence in its core advantages, including a rich music content library, extensive user asset management experience, and high penetration across multiple platforms [9]. - The synergy with Tencent's gaming and video IPs provides a unique competitive edge that is difficult for rivals to replicate [9]. Group 5: Financial Outlook - TME's projected financial performance shows a net profit increase from RMB 6,223 million in 2023 to RMB 12,490 million by 2027, with a diluted EPS growth from RMB 3.925 to an estimated RMB 7.999 [10]. - Despite potential short-term impacts on gross margins from the concert business, the long-term strategic investments in fan economy and ecosystem are expected to drive sustainable growth [10].