Investment Rating - The report maintains a "Buy" rating for NetEase Cloud Music (9899.HK) with a target price of 293.51 HKD [5][3] Core Views - The introduction of well-known Korean music labels and the promotion of original music are expected to drive growth in online music MAU (Monthly Active Users) [3][8] - The company reported a 25H1 revenue of 3.83 billion CNY, a year-on-year decrease of 6%, which was slightly below Bloomberg's expectations [8] - The net profit attributable to the parent company for 25H1 was 1.89 billion CNY, a year-on-year increase of 133%, exceeding Bloomberg's expectations by 57% [8] Financial Forecasts and Investment Recommendations - The forecast for net profit attributable to the parent company for 2025-2027 is 2.81 billion, 2.17 billion, and 2.54 billion CNY respectively [3] - The revenue for 2025 is expected to be 7.93 billion CNY, with a slight decrease of 0.2% year-on-year, followed by a growth of 9.7% in 2026 [10] - The report anticipates that the online music revenue for 25H2 may reach 3.2 billion CNY, reflecting a year-on-year growth of 15% [8] - The company is focusing on its core music business while adjusting its social entertainment segment, which saw a significant decline in revenue [8] Key Financial Metrics - The company's gross margin for 25H1 was 36%, which was 2 percentage points higher than Bloomberg's expectations [8] - The projected earnings per share for 2025 is 12.91 CNY, with a net profit margin of 35.4% [10] - The price-to-earnings ratio for 2025 is estimated at 19.7 times, while the price-to-book ratio is projected at 4.3 times [10]

Core Insights - The online music industry is entering a new phase characterized by "emotional economy," with companies adapting their business models to enhance user engagement and monetization opportunities [12] Group 1: Company Performance - Tencent Music reported a total revenue of 84.4 billion yuan for Q2 2025, a year-on-year increase of 17.9%, with adjusted net profit rising by 33.0% to 26.4 billion yuan [1] - In contrast, NetEase Cloud Music's revenue for the first half of 2025 was 38.27 billion yuan, a decline of 6%, but its profit surged by 132.4% to 18.82 billion yuan, indicating a shift towards more profitable "emotional consumption" despite lower overall revenue [1][2] Group 2: Strategic Focus - The online music platforms are increasingly focusing on K-POP, live performances, and fan engagement as key growth drivers for 2025 [2] - Tencent Music has strengthened its content advantage by becoming the second-largest shareholder of SM Entertainment and forming strategic partnerships with K-POP labels [2][3] - NetEase Cloud Music is also expanding its K-POP content library through partnerships with major entertainment companies [3] Group 3: User Engagement and Monetization - Tencent Music has launched the Bubble fan interaction community, offering high-value services such as exclusive merchandise and priority concert ticket purchases, enhancing user engagement [3][4] - NetEase Cloud Music has introduced features like free early listening and ticket purchasing for premium members, tapping into fan demand for exclusive experiences [3][4] - Both companies are leveraging their platforms to create immersive experiences that deepen emotional connections with users, thus driving music consumption [4][6] Group 4: Market Trends - The rise of "emotional economy" is transforming the online music industry, with platforms moving beyond simple music streaming to include artist management, live events, and merchandise sales [6][12] - Tencent Music's successful management of G-DRAGON's concert in Macau has expanded its presence in the international entertainment market, showcasing the potential of fan-driven economic models [7][8] - The number of independent musicians on NetEase Cloud Music has surpassed 819,000, indicating a growing diversity in music content that attracts younger audiences [8] Group 5: Future Outlook - The ongoing evolution of online music platforms reflects a deeper understanding of emotional connections and social interactions, which are crucial for future growth [12] - The balance between commercialization and user experience will be a significant challenge for the industry moving forward, as companies navigate the complexities of the emotional economy [12]

Core Viewpoint - The report from China Merchants Securities International indicates a downward revision of revenue forecasts for NetEase Cloud Music (09899) for the fiscal years 2025 and 2026 by 4% to 5% due to expected weakness in the social entertainment business, while core operating profit forecasts are raised by 25% and 23% respectively [1] Revenue and Profit Forecasts - Online music service revenue for the first half of the year reached 2.97 billion RMB, a year-on-year increase of 16%, accounting for 78% of total revenue [1] - Core operating profit increased by 35% to 905 million RMB, exceeding market expectations by 40% [1] - For fiscal years 2025 and 2026, core operating profits are expected to be 1.7 billion and 2.1 billion RMB, representing year-on-year growth of 33% and 21% respectively [1] Valuation and Target Price - The target price for NetEase Cloud Music has been significantly raised from 208 HKD to 330 HKD based on the sum-of-the-parts valuation method [1] - The music business is assigned a 30x price-to-earnings ratio for the next 12 months, while the social entertainment business is assigned a 10x price-to-earnings ratio, leading to expected price-to-earnings ratios of 21x and 26x for fiscal years 2025 and 2026 respectively [1] Cash Reserves - As of the end of the reporting period, NetEase Cloud Music had net cash reserves of 12.4 billion RMB [1]

Core Viewpoint - The report from China Merchants Securities International indicates a downward revision of revenue forecasts for NetEase Cloud Music (09899) for the fiscal years 2025 and 2026 by 4% to 5% due to weakening expectations in the social entertainment business, while core operating profit forecasts are raised by 25% and 23% respectively [1] Group 1: Financial Performance - NetEase Cloud Music's online music service revenue reached 2.97 billion RMB in the first half of the year, representing a year-on-year growth of 16%, which aligns with expectations and accounts for 78% of total revenue [1] - Gross margin improved by 1.4 percentage points to 36.4%, exceeding the market expectation of 34.1% [1] - Core operating profit increased by 35% to 905 million RMB, surpassing market expectations by 40% [1] - The company ended the period with a net cash reserve of 12.4 billion RMB [1] Group 2: Future Outlook - China Merchants Securities International anticipates that the online music business will achieve a year-on-year growth rate of 17% in the second half of 2025, contributing to overall revenue growth for the group [1] - The projected core operating profits for NetEase Cloud Music are 1.7 billion RMB and 2.1 billion RMB for the fiscal years 2025 and 2026, reflecting year-on-year growth rates of 33% and 21% respectively [1] Group 3: Valuation and Rating - The target price for NetEase Cloud Music has been significantly raised from 208 HKD to 330 HKD based on the sum-of-the-parts valuation method (SOTP) [1] - The music business is assigned a 30x price-to-earnings ratio for the next 12 months, while the social entertainment business is assigned a 10x price-to-earnings ratio, leading to expected price-to-earnings ratios of 21x and 26x for the fiscal years 2025 and 2026 respectively [1] - The overall rating for NetEase Cloud Music is upgraded to "Buy" [1]

Group 1 - Tencent's revenue for the first half of 2025 reached 364.53 billion yuan, a year-on-year increase of 14%, leading to a new high in market capitalization in nearly four years [1] - Tencent Music's market capitalization surged to over 30 billion USD, ranking among the top 10 Chinese internet companies [3][4] - Tencent Music's market capitalization increased from around 16 billion USD at the beginning of the year to nearly 40 billion USD, showcasing significant growth [6] Group 2 - Tencent Music faced three major challenges: loss of exclusive copyrights, decline in social entertainment services, and impacts from fan economy regulations [9][12][14] - The company adapted by enhancing monetization strategies for both non-paying and paying users, including advertising and premium membership offerings [17][25] - Tencent Music's revenue for the first half of the year was 15.7 billion yuan, with a net profit of 6.7 billion yuan, outperforming many competitors in the entertainment industry [26] Group 3 - The competitive landscape is intensifying, with ByteDance's products like Tomato Listening and Soda Music gaining traction, posing a challenge to Tencent Music [31][35] - Despite its current leading position, Tencent Music must remain vigilant as new entrants continue to emerge in the music streaming market [37]

Core Insights - NetEase Cloud Music's performance in the first half of the year exceeded expectations, with online music service revenue reaching 2.97 billion yuan, a year-on-year increase of 16%, accounting for 78% of total revenue [1] - Gross margin improved by 1.4 percentage points year-on-year to 36.4%, surpassing market expectations of 34.1% [1] - Core operating profit grew by 35% year-on-year to 905 million yuan, exceeding market expectations by 40% [1] - The company ended the period with a net cash reserve of 12.4 billion yuan [1] Future Outlook - The firm anticipates a 17% year-on-year growth in online music business for the second half of the year, effectively offsetting revenue declines in the social entertainment segment, leading to an overall revenue growth of 5% year-on-year for the group [1] - Due to expected weakness in the social entertainment business, revenue forecasts for fiscal years 2025 and 2026 have been revised down by 4% to 5% [1] - However, benefiting from improved profit margins due to cost control, core operating profit forecasts have been raised by 25% and 23% respectively [1] Valuation and Ratings - Based on the sum-of-the-parts valuation method, the target price for NetEase Cloud Music has been significantly raised from 208 HKD to 330 HKD, with a rating of "Buy" [1] - Additionally, another major bank, Jiangyin International, has also raised its target price for NetEase Cloud Music to 339 HKD while maintaining a "Buy" rating [2]

Group 1 - The core viewpoint of the article highlights that NetEase Cloud Music's stock has risen over 4%, reaching 290 HKD with a trading volume of 304 million HKD [1] - In the first half of the year, the company achieved a revenue of 3.827 billion RMB, with a profit attributable to equity holders of 1.885 billion RMB, representing a year-on-year increase of 132.83% [1] - The adjusted net profit for the same period was 1.946 billion RMB, showing a year-on-year increase of 120.99% [1] Group 2 - The gross margin for the first half of the year reached 36.4%, marking a historical high for the company during this period [1] - In the online music segment, revenue amounted to 2.967 billion RMB, reflecting a year-on-year growth of 15.9%, with subscription revenue reaching 2.47 billion RMB, up 15.2% year-on-year [1] - Dongwu Securities believes that the company's focus on its core music business and continuous optimization of product experience is likely to drive user growth, indicating significant commercial potential compared to domestic and international music streaming platforms with lower payment walls [1]

Core Viewpoint - NetEase Cloud Music (09899) has seen a stock price increase of over 4%, currently at 290 HKD, with a trading volume of 304 million HKD, reflecting strong financial performance in the first half of the year [1] Financial Performance - The company reported a revenue of 3.827 billion RMB for the first half of the year [1] - Profit attributable to equity holders reached 1.885 billion RMB, marking a year-on-year increase of 132.83% [1] - Adjusted net profit was 1.946 billion RMB, up 120.99% year-on-year [1] - Gross margin for the first half reached 36.4%, the highest for the company in the same period historically [1] Online Music Business - Revenue from the online music segment was 2.967 billion RMB, representing a year-on-year growth of 15.9% [1] - Subscription revenue amounted to 2.47 billion RMB, with a year-on-year increase of 15.2% [1] Market Outlook - Dongwu Securities believes that the company's focus on its core music business and continuous product experience optimization is likely to drive user growth [1] - The company is positioned well against domestic and international music streaming platforms, indicating significant commercial potential due to lower payment barriers [1]

Core Insights - The company experienced a 6% year-on-year decline in total revenue for H1 2025, with social entertainment revenue dropping by 43% [1] - Despite the revenue decline, the adjusted operating profit increased by 35% year-on-year, indicating strong cost control measures [1] Financial Overview - Total revenue for H1 2025 reached 3.83 billion yuan, down 6% year-on-year, with social entertainment revenue significantly impacted [1] - The gross margin improved to 36.4%, up 1.4 percentage points year-on-year, primarily due to optimized music copyright costs [1] - Content service costs were 1.8 billion yuan, a 10% decrease year-on-year, accounting for 47% of total revenue, down 2 percentage points [1] - The total expense ratio decreased to 16.6%, down 4 percentage points year-on-year, driven by effective sales expense optimization [1] - Adjusted net profit for H1 2025 was 1.95 billion yuan, a 121% increase year-on-year, with an adjusted profit margin of 50.9% [1] Business Segments - The online music business saw a 16% increase in revenue, reaching 2.97 billion yuan, driven by a 15% growth in subscription revenue [2] - The paid user penetration rate in the online music sector reached 27%, up 3 percentage points year-on-year, indicating strong market positioning [2] - Social entertainment services and other business revenues fell to 860 million yuan, a 43% decline, as the company worked on improving the live streaming ecosystem [2] Investment Outlook - The company is focusing on young users and developing original content to create differentiation in the market [3] - The strategy to attract student members is expected to contribute to long-term growth, with a stable increase in monthly active users [3] - The company has adjusted its profit forecast for 2025-2027, expecting adjusted profits of 3.05 billion, 2.54 billion, and 3.05 billion yuan respectively, reflecting a significant upward revision [3]

Group 1: Financial Performance - In Q2 2025, the company achieved revenue of 27.9 billion yuan, a year-on-year increase of 9% [1] - Non-GAAP net profit reached 9.5 billion yuan, up 22% year-on-year, with a Non-GAAP net profit margin of 34.2%, an increase of 3 percentage points [1] - The comprehensive gross profit margin was 64.7%, up 1.8 percentage points year-on-year, while the total operating expense ratio was 32%, down 3 percentage points year-on-year [1] Group 2: Gaming Business - Online gaming revenue for Q2 2025 was 22.1 billion yuan, a 15% year-on-year increase, with strong performance from titles like "Identity V" and "Marvel Duel" [2] - Deferred revenue reached 16.97 billion yuan, a 25% year-on-year increase, indicating healthy future revenue streams [2] - The company is focusing on global expansion with new game releases and updates, achieving significant rankings on various platforms [2] Group 3: Youdao and Cloud Music - Youdao's net revenue for Q2 2025 was 1.4 billion yuan, a 7% year-on-year increase, driven by a 24% growth in advertising services [2] - Net revenue for NetEase Cloud Music was 2 billion yuan, down 4% year-on-year, with a gross margin of 36.1%, up 4 percentage points year-on-year [3] - The company is expected to increase investment in copyright content in the second half of the year, which may lead to a decrease in gross margin [3] Group 4: Investment Outlook - The company is recognized for its strong game development capabilities and is expected to maintain profitability, with adjusted net profit forecasts of 39.3 billion, 42.5 billion, and 46.7 billion yuan for 2025-2027 [3] - Continued focus on high-quality and globalized game offerings is anticipated, with key titles to watch including "Destiny: Stars," "Forgotten Sea," and "Return to Tang" [3]