TME(US:TME) GF SECURITIES·2024-05-21 06:31Investment Rating - The report assigns a "Buy" rating for both A-shares and H-shares of Tencent Music (TME) [1][26]. Core Insights - The company reported stronger-than-expected growth in subscription members, leading to accelerated profit release [1][24]. - In Q1 2024, Tencent Music's revenue reached 6.768 billion RMB, slightly above the consensus estimate of 6.554 billion RMB, with a year-over-year decline of 3% and a quarter-over-quarter decline of 2% [2][8]. - The adjusted net profit for Q1 2024 was 1.7 billion RMB, representing a year-over-year increase of 21% and a quarter-over-quarter increase of 8%, exceeding the consensus estimate of 1.589 billion RMB [2][8]. Revenue and Profitability - Online music business revenue in Q1 2024 was 5.007 billion RMB, surpassing the consensus estimate of 4.847 billion RMB, with a year-over-year growth of 43% [1][8]. - The number of paid subscribers reached 113.5 million, exceeding the consensus estimate of 112.5 million, with a year-over-year growth of 20.2% [1][8]. - The gross margin for Q1 2024 was 40.9%, higher than the consensus estimate of 38.9%, reflecting a year-over-year increase of 7.9 percentage points [20][24]. Future Projections - Revenue is projected to grow to 28.7 billion RMB in 2024 and 32.8 billion RMB in 2025, with year-over-year growth rates of 4% and 14% respectively [24][25]. - The adjusted net profit for 2024 is expected to be 7.463 billion RMB, with a growth rate of 26% [25][26]. - The report anticipates that the number of paid subscribers will reach 123 million by the end of 2025, with a corresponding payment rate of 21.2% [24][25]. Valuation - The fair value of Tencent Music is estimated at 15.81 USD per ADS, equivalent to 61.74 HKD per share, based on a sum-of-the-parts valuation method [26][24]. - The valuation considers the online music business's expected growth and the stabilization of the social entertainment business [26][24].