Largely inline 2H25. Total revenue grew moderately at 1% YoY to RMB3.9bn, -1% below consensus. Online music services revenue delivered 8% YoY, -4% lagging streets' expectation, contributed by solid 12% YoY core subs while -7% YoY music non-subs. Social revenue returned to +5% HoH while still dropping by -17% YoY. Adj. NPM was 23.4%, in-line with consensus despite underperformed 35.0% GPM. Key Risks for Rating Downside risks: i) deteriorated content supply; ii) dampened copyright partners; iii) ineffective m ...

Macro Analysis - The January non-farm payroll data exceeded expectations, primarily driven by recovery in the private sector, with both production and service sectors showing significant job growth, indicating signs of stabilization in the US economy [1] - The improvement in employment aligns with the recent upward trends in US manufacturing and services PMI, suggesting a positive economic outlook [1] - Given the strong employment performance, the likelihood of the Federal Reserve restarting interest rate cuts in the first quarter is low [1] Industry Research - The implementation of the national electricity market framework "Document No. 4" highlights the importance of base-load power sources and the continuous improvement of business models among various participants [2] - The green electricity environment premium is gradually being confirmed, promoting the enhancement of overall consumption across various application scenarios [2] - Key investment opportunities include Long Jiang Power and Huaneng International, as well as Electric Investment Green Energy and Jinkai New Energy, with a focus on the carbon market and expanding application scenarios [2] Company Research - Xidi Zhijia (3881.HK) is positioned to benefit significantly from the scaling of autonomous mining trucks, with projections indicating a Non-IFRS net loss of 76 million yuan in 2025, followed by net profits of 75 million and 357 million yuan in 2026 and 2027 respectively [3] - The company is expected to maintain its industry-leading position due to its advantages in technology, scenarios, and commercialization [3] - The initial coverage of Xidi Zhijia is rated as "Buy" [3] Internet Media - NetEase Cloud Music (9899.HK) focuses on differentiated music content and exceptional product functionality, with an emphasis on expanding its membership base [4] - The adjusted net profit forecasts for 2026 and 2027 have been lowered to 2.21 billion and 2.47 billion yuan, respectively, reflecting a decrease of 15% and 13% from previous estimates [4] - The company is expected to see improved profitability in the medium to long term due to scale effects, maintaining a "Buy" rating [4] Overseas TMT - Semiconductor Manufacturing International Corporation (SMIC) (0981.HK) is experiencing high utilization rates but faces increased depreciation pressure due to new production line investments [5] - The net profit forecasts for 2026 and 2027 have been adjusted to 1.08 billion and 1.25 billion USD, respectively [5] - The stock is rated as "Buy" for both Hong Kong and A-share markets, benefiting from AI computing demand and domestic substitution trends [5]

Group 1: Macroeconomic Insights - The January non-farm payroll data exceeded expectations, primarily driven by recovery in the private sector, with significant job additions in both production and service sectors, indicating signs of economic stabilization in the U.S. [5] - The improvement in employment aligns with rising trends in U.S. manufacturing and service PMIs, suggesting a positive economic outlook amidst reduced tariff disruptions and the potential for the Federal Reserve to resume interest rate cuts in 2025 [5] Group 2: Utility Sector Developments - The "Document No. 4" outlines the national unified electricity market framework, marking a significant step in China's electricity market reform initiated by the "Document No. 5" in 2002, which emphasized the separation of generation and grid operations [5] - The reforms aim to enhance market mechanisms, including pricing and trading structures, to facilitate a more competitive electricity market [5] Group 3: Company-Specific Analysis - Xidi Intelligent Driving, established in 2017, focuses on autonomous driving technology for commercial vehicles, particularly in mining and logistics, and is one of the first companies in China to achieve regular operations of unmanned mining trucks [5] - Kintor Technology, a leading manufacturer of copper-clad laminates, is projected to see significant profit growth from 2025 to 2027, with net profits expected to reach HKD 21.70 billion, HKD 39.52 billion, and HKD 48.37 billion, reflecting year-on-year growth rates of 64%, 82%, and 22% respectively [7] - NetEase Cloud Music reported a revenue of RMB 77.59 billion for 2025, slightly below expectations, with a year-on-year decline of 2.4%, while adjusted net profit saw a substantial increase of 68.2% to RMB 28.60 billion, largely due to deferred tax asset recognition [7]

Core Viewpoint - The fourth music industry survey by Credit Lyonnais confirms that the fundamentals of China's online music industry remain healthy, with robust long-term growth momentum driven by increasing payment rates, the potential of the super fan economy, and strong user engagement and product differentiation amid intense competition [1] Group 1: Industry Insights - The online music industry in China is supported by a continuous increase in payment rates, indicating a growing willingness among users to pay for music services [1] - The potential of the super fan economy is highlighted as a significant driver for future growth, suggesting that dedicated fan bases can lead to increased revenue opportunities [1] - User engagement and product differentiation remain strong, which is crucial for sustaining competitive advantages in a crowded market [1] Group 2: Company Ratings - Credit Lyonnais maintains a target price of HKD 92.1 for Tencent Music, reflecting confidence in its market position and growth prospects [1] - The target price for NetEase Cloud Music has been adjusted down from HKD 310.5 to HKD 275, indicating a more cautious outlook while still maintaining an "outperform" rating [1]

Core Viewpoint - The music industry is expected to achieve dual growth in traffic and paid subscriptions through copyright expansion, with Tencent Music and NetEase Cloud Music leading the way in user engagement and content acquisition [1] Company Analysis - Tencent Music's stock rose over 3% to $21.31, indicating positive market sentiment [1] - The company is enhancing its user base by acquiring Korean company SM and planning to acquire Ximalaya, which is expected to attract K-pop and long audio users [1] - The increase in the proportion of paid users and the expansion of SVIP benefits are driving growth in Average Revenue Per Paying User (ARPPU) [1] Industry Insights - The report from Dongfang Securities highlights that both Tencent Music and NetEase Cloud Music are stabilizing and improving their traffic and payment rates through copyright supplementation and user operations [1] - NetEase Cloud Music is maintaining stable traffic by incubating independent musicians and securing K-pop copyrights [1]

Investment Rating - The report maintains a positive outlook on the Hong Kong stock market, particularly in the areas of virtual assets and Web3.0 development, suggesting a strong investment opportunity in these sectors [2][9]. Core Insights - The report emphasizes the importance of monitoring global tariff negotiations, particularly the recent developments in U.S.-China trade relations and their potential impact on market dynamics [9]. - There is a notable increase in the quality and risk appetite of Hong Kong assets, with a focus on asset trading platforms as valuable investment opportunities [9]. - The report highlights the active performance of virtual asset-related stocks in Hong Kong, driven by stablecoin policies, and anticipates further regulatory developments in this area [2][9]. Summary by Sections 1. Industry Situation Tracking 1.1 Education - The K12 education sector shows strong growth, with leading institutions reporting over 20% revenue growth for winter training sessions [4]. - Recent product launches in AI education indicate ongoing innovation in the sector [4][17]. 1.2 Luxury Goods - The luxury goods sector is experiencing disruptions due to U.S.-EU tariff policies, with cautious price increases observed among brands [4][19]. - LVMH expresses confidence in the Chinese market despite recent consumption declines, indicating a long-term positive outlook [21]. 1.3 Coffee and Beverage Chains - Coffee and tea remain key categories for delivery platforms, with recent subsidies from platforms like JD.com [4]. - Coffee futures have seen a significant decline, which may alleviate cost pressures for companies like Luckin Coffee [4][27]. 1.4 E-commerce - Major players like Alibaba and JD.com continue to compete aggressively in the delivery and retail sectors, impacting short-term profitability [4]. - The report notes strong performance in the "618" shopping festival, with significant growth in various product categories [32]. 2. Platform & Technology 2.1 Streaming Platforms - The streaming sector shows resilience, with Tencent Music and other platforms benefiting from scale effects [4][33]. - Recent transactions, such as HYBE's sale of SM Entertainment shares to Tencent Music, highlight strategic movements within the industry [34]. 2.2 Virtual Assets & Internet Brokers - The global cryptocurrency market capitalization is reported at $337.44 billion, reflecting a 4% decline [38]. - The introduction of the Stablecoin Regulation in Hong Kong marks a significant step in regulating digital asset activities [41].