TME(US:TME) Goldman Sachs·2025-06-23 02:09Investment Rating - The report maintains a Buy rating for Tencent Music Entertainment Group (TME) and raises the 12-month price target to US$21.00 from a previous US$15.50, indicating an upside potential of 15.4% [1][33]. Core Insights - The report highlights a constructive outlook on TME's faster Super VIP (SVIP) penetration and the long-term potential of its non-subscription business, particularly in live events and artist sponsorships [1][15]. - TME's stock has shown significant growth, rallying 69% year-to-date compared to HSTech's 18% [1]. - The report emphasizes the company's strong growth visibility and pricing power, particularly in the context of ARPU (Average Revenue Per User) growth driven by SVIP membership [1][15]. Summary by Sections Revenue and Growth Projections - TME's revenue is projected to grow from RMB 28,401 million in 2024 to RMB 38,385 million by 2027, with a compound annual growth rate (CAGR) of approximately 10.4% [3][13]. - Non-subscription revenue is expected to outpace subscription revenue in the long run, currently accounting for 30% of total music revenue, with significant growth anticipated in live events and artist agency business [24][30]. ARPU and SVIP Penetration - The report raises ARPU estimates due to faster SVIP penetration, which is expected to increase from low-teen percentages to 19% by 2027, driven by enhanced SVIP privileges [16][18]. - Monthly ARPU for SVIP is forecasted to reach RMB 19.5 by 2025, reflecting a strong upward trend [20][21]. M&A and Strategic Initiatives - TME's recent strategic investments, including a 10% stake in SM Entertainment and a full acquisition of Ximalaya, are aimed at enhancing content offerings and expanding its footprint across the music industry value chain [7][30]. - The report notes that TME's strategy includes diversifying revenue streams through artist merchandising and live events, which aligns with its long-term vision [30][29]. Valuation Metrics - The report adjusts TME's valuation methodology to a sum-of-the-parts (SOTP) approach, reflecting the value of its minority stakes in companies like Spotify and Universal Music [15][33]. - The new price target implies a 22X P/E for 2026, justified by TME's strong growth visibility compared to peers in the Chinese internet sector [15][33].