Investment Rating - The investment rating for Tencent Music (TME US) is "Buy" with a target 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].
音乐会员维持强劲增势，在线音乐成本优化好于预期