Investment Rating - The investment rating for Tencent Music (TME.N) is "Outperform" [1] Core Views - The report highlights that Tencent Music is expanding in the pan-music field, with a successful increase in ARPPU (Average Revenue Per Paying User) [1][4] - The company is expected to maintain a strong position in the subscription business, driven by the growth of ARPPU and an increase in paid user penetration [6][28] - Tencent Music's acquisition of the long audio leader, Ximalaya, is anticipated to enhance synergies between long audio and music, similar to the model of Spotify [6][29] Financial Performance - In Q2 2025, Tencent Music achieved total revenue of 8.44 billion yuan, representing a year-on-year increase of 17.9% and a quarter-on-quarter increase of 14.8% [11][20] - The online music revenue accounted for 81% of total revenue, with a gross margin of 44.4%, up 2.4 percentage points year-on-year [11][20] - Adjusted net profit for Q2 2025 was 2.64 billion yuan, reflecting a year-on-year growth of 33% [11][20] Subscription Business - In Q2 2025, subscription revenue reached 4.38 billion yuan, a year-on-year increase of 17.1% [4][20] - The number of online music paying users was 124 million, with a payment rate of 22.5%, up 2 percentage points year-on-year [4][26] - The monthly ARPPU was 11.7 yuan, showing a year-on-year increase of 9.3% [4][26] Other Online Music Revenue - Other online music business revenue, including advertising and digital albums, grew by 46.9% year-on-year to 2.47 billion yuan [5][20] - The company has seen strong growth in artist-related activities and live performances, including managing large international tours [5][20] Strategic Developments - Tencent Music is actively expanding overseas, including a stake in South Korean SM Entertainment and launching the "Bubble" product for high-end fan services [8][29] - The report suggests that the company is well-positioned to leverage its leading market position and expand its pan-music offerings [6][29] Valuation - The reasonable valuation range for Tencent Music is set at $27.10 to $28.90, reflecting an increase of 66-71% [1][29] - The report uses comparable companies for valuation, indicating a strong growth potential in the pan-entertainment sector [29][30]