TME(US:TME) EBSCN·2024-05-21 06:02Investment Rating - The report maintains a "Buy" rating for the company, indicating a projected investment return exceeding 15% over the next 6-12 months [13]. Core Insights - The company reported strong growth in music subscriptions, with total revenue reaching 6.77 billion RMB, exceeding market expectations [2]. - The adjusted net profit for Q1 2024 was 1.81 billion RMB, reflecting a year-on-year increase of 23.9% [2]. - The company announced its first annual cash dividend, amounting to approximately 210 million USD for the fiscal year 2023 [2]. - The online music revenue was 5.01 billion RMB, a year-on-year increase of 43%, driven by a record net addition of 6.8 million subscription users in Q1 2024 [2]. - The company expects continued growth in Average Revenue Per Paying User (ARPPU), which reached 10.6 RMB, up 15.2% year-on-year [2]. Summary by Sections Financial Performance - Q1 2024 revenue was 6.77 billion RMB, a decrease of 3.4% year-on-year, but above Bloomberg consensus of 6.55 billion RMB [2]. - Gross margin improved to 40.9%, up 7.8 percentage points year-on-year, surpassing the expected 38.9% [2]. - Operating profit for Q1 2024 increased to 1.96 billion RMB, a year-on-year growth of 41.9% [2]. - The company expects revenue forecasts for 2024-2026 to be 28.8 billion, 31.2 billion, and 33.4 billion RMB respectively [2]. Business Segments - Online music revenue reached 5.01 billion RMB, with subscription revenue growing to 3.62 billion RMB, a 39% increase year-on-year [2]. - Social entertainment revenue was 1.76 billion RMB, down 49.7% year-on-year, although social paying users grew by 12.7% [2]. - Other music revenue reached 1.39 billion RMB, a 54.4% increase year-on-year, driven by innovative advertising strategies [2]. Strategic Initiatives - The company is leveraging AI tools to enhance user experience and retention, including the development of audio language models and music generation models [2]. - The company has established mutually beneficial partnerships with record labels and artists to improve content operation efficiency [2]. - Cost management strategies have led to a 7.6% reduction in operating expenses year-on-year, with marketing expenses expected to stabilize in 2024 [2].