Investment Rating - The report assigns a "Buy" rating for Tencent Music (1698.HK) as part of its initial coverage [1]. Core Insights - The report highlights continuous optimization of profit margins, with both paid users and ARPU (Average Revenue Per User) showing growth, driving strong performance in the online music subscription business [3][4]. Financial Performance Summary - In Q2 2024, Tencent Music reported revenue of 7.16 billion RMB, a year-over-year decrease of 1.7% but a quarter-over-quarter increase of 5.8%. Operating costs were 4.15 billion RMB, down 13.3% year-over-year and up 3.8% quarter-over-quarter. The IFRS net profit attributable to shareholders was 1.68 billion RMB, up 29.6% year-over-year and 18.3% quarter-over-quarter [3]. - The company achieved a gross margin of 42.0%, an increase of 7.8 percentage points year-over-year, primarily due to strong growth in music subscription and advertising revenues [3]. - As of the end of Q2 2024, the company had cash and cash equivalents totaling 35.03 billion RMB, an increase of 0.85 billion RMB from Q1 2024 [3]. Online Music Business Growth - Online music business revenue reached 5.42 billion RMB in Q2 2024, representing a year-over-year increase of 27.7% and a quarter-over-quarter increase of 8.2%. Subscription revenue was 3.74 billion RMB, up 29.4% year-over-year and 3.3% quarter-over-quarter, driven by growth in paid users and ARPU [4]. - The number of paid users for online music reached 117 million, a year-over-year increase of 17.7% and a quarter-over-quarter increase of 3.1%. The paid user rate was 20.5%, up 3.8 percentage points year-over-year [4]. Social Entertainment Business Adjustments - Social entertainment and other services revenue was 1.74 billion RMB in Q2 2024, down 42.8% year-over-year and 1.4% quarter-over-quarter, primarily due to adjustments in live interaction features and increased market competition [5]. Earnings Forecast and Valuation - The report forecasts revenues of 28.83 billion RMB, 32.00 billion RMB, and 34.95 billion RMB for 2024, 2025, and 2026 respectively. The net profit attributable to shareholders is expected to be 6.34 billion RMB, 7.62 billion RMB, and 8.60 billion RMB for the same years [6][7]. - The adjusted PE ratios are projected to be 21, 18, and 16 for 2024, 2025, and 2026 respectively, indicating a healthy growth outlook for the company [6].
腾讯音乐-SW：公司动态研究：利润率持续优化，付费用户和ARPU双增