TME(US:TME) Shenwan Hongyuan Securities·2025-08-18 09:47Investment Rating - The industry investment rating is "Positive" (看好) indicating that the industry is expected to outperform the overall market [4][12]. Core Insights - The report highlights that Tencent Music and NetEase Cloud Music are leading the domestic music platform sector, with Tencent Music's subscription revenue reaching 4.38 billion RMB in Q2 2025, a year-on-year increase of 17.1%. The average revenue per paying user (ARPPU) increased by 9.3% to 11.7 RMB, driven by the SVIP strategy [4]. - The report emphasizes the strong performance of the online entertainment sector, particularly the growth of self-owned copyright operations by companies like Reading Group and the expansion of offline channels for merchandise [4]. - The report expresses concerns about AI applications potentially disrupting the industry, but notes that companies with a "data + scenario" approach have a competitive edge in product design and user engagement [4]. Summary by Sections Media Sector - Tencent Music's revenue from subscriptions and other income sources exceeded expectations, with a focus on monetizing fan economies. The company is expected to continue increasing its average transaction value [4]. - NetEase Cloud Music's subscription revenue grew by 15.2% year-on-year, driven by an increase in paying users, particularly among younger demographics [4]. Entertainment and Gaming - JD Health reported a 30% year-on-year increase in pharmaceutical sales, indicating significant growth potential in online medical sales [4]. - The report highlights the strong performance of various entertainment companies, including Bilibili and Mango TV, which are diversifying their revenue streams beyond traditional advertising and gaming [4]. Valuation of Key Companies - The report provides a valuation table for key companies, indicating projected revenue and profit growth for Tencent Holdings, NetEase, and others, with Tencent expected to achieve a revenue of 7.46 billion RMB in 2025, a growth of 13% [6]. - The report also notes the strong growth potential for companies like Pop Mart and Focus Technology, with significant year-on-year revenue increases projected [6].