TME(US:TME)2024-05-15 06:02Investment Rating - The investment rating for Tencent Music (TME US) is "Buy" with a target price of $17.00, indicating a potential upside of 14.9% from the current price of $14.80 [1][12]. Core Insights - Tencent Music's Q1 2024 performance exceeded expectations, with revenues of 6.8 billion RMB, driven by strong music business growth, despite a 50% decline in social entertainment revenue [2][3]. - The adjusted net profit for Q1 2024 was 1.8 billion RMB, a 24% year-on-year increase, surpassing market expectations [2][3]. - The company reported a record net increase of 6.8 million paid subscribers, bringing the total to 113.5 million, with a paid rate of 19.6% [2][3]. Financial Summary - Revenue for 2024 is projected to be 28.7 billion RMB, with a year-on-year growth of 3.4% [4]. - Adjusted net profit for 2024 is expected to reach 7.1 billion RMB, reflecting a 14.4% increase [4]. - The earnings per share (EPS) for 2024 is forecasted at 4.28 RMB, with a price-to-earnings (P/E) ratio of 25.0 [4]. Valuation - The valuation has been adjusted to a sum-of-the-parts (SOTP) approach, with the music segment valued at $15 based on a 25x P/E ratio, and the social segment at $1 based on a 5x P/E ratio [3][9]. - The total valuation for Tencent Music is estimated at $26.1 billion, with a target price of $17.00 [9]. Outlook - For Q2 2024, online music revenue is expected to grow by 30%, with a net increase of 3.7 million subscribers, raising the annual net subscriber growth forecast to 16.8 million [2][8]. - The company anticipates a 21% increase in non-member music revenue, driven by innovative advertising and strong performance in e-commerce and gaming sectors [2][8].