Core Viewpoint - Cathay Securities maintains a "Buy" rating for Tencent Music (01698), projecting revenue growth and adjusted net profit for 2025-2027, with a target price of HKD 96.0 for 2026 based on a 25x PE ratio [1] Financial Performance - Tencent Music achieved revenue of RMB 84.6 billion in Q3 2025, a year-on-year increase of 20.6% with a gross margin of 43.5%, up 0.9 percentage points [1] - Operating profit reached RMB 27.1 billion, reflecting a 26.4% year-on-year growth, with an operating margin of 32.0%, up 1.5 percentage points [1] - Adjusted net profit for Q3 2025 was RMB 24.1 billion, a 32.6% increase year-on-year, with an adjusted net margin of 28.4%, up 2.6 percentage points [1] Revenue Drivers - Online music service revenue was RMB 69.7 billion in Q3 2025, up 27.2% year-on-year, with subscription revenue at RMB 45 billion, a 17.2% increase [2] - The number of paying users reached 126 million, a 5.6% year-on-year increase, with a paid penetration rate of 22.8%, up 2.2 percentage points; ARPPU was RMB 11.9, a 10.2% increase [2] - Offline performances, advertising, and peripheral income contributed to a revenue of RMB 24.7 billion, a significant 50.5% year-on-year growth [2] Content and User Engagement - The multilingual music library has been strengthened through contracts with top artists and the introduction of Japanese and Korean ACG labels [3] - Collaborative music projects with games like "Honor of Kings" have produced hit songs such as "Tomorrow's Coordinates" [3] - The user experience has been enhanced through innovative membership systems, increasing user stickiness and daily usage time for free users [3]

Core Insights - Tencent Music operates popular music products in the domestic market, including QQ Music, Kugou Music, Kuwo Music, and Quanmin Kge, offering services such as online music, audio, karaoke, live streaming, and online performances [1][2] Financial Performance - In Q3 2025, Tencent Music reported total revenue of RMB 84.6 billion, a year-on-year increase of 20.6%, and an adjusted net profit of RMB 24.8 billion, up 27.7% year-on-year [3] - Online music service revenue grew by 27.2% year-on-year to RMB 69.7 billion, driven by strong growth in online music subscription revenue and increases in offline performances, advertising services, and artist-related income [1] User Metrics - Monthly active users slightly decreased by 4.3% to 551 million, while the number of paying users increased by 5.6% to 126 million [1] - Online music subscription revenue reached RMB 45.0 billion, a 17.2% increase from RMB 38.4 billion in the same period last year, primarily due to an increase in average revenue per paying user [1] Membership Strategy - Tencent Music's multi-tier membership system enhances user engagement and conversion, offering differentiated services through free, ad-supported, and standard memberships to meet diverse user needs [2] - The newly introduced ad-supported membership has shown increasing appeal to free users, with daily usage time on the platform continuing to rise [2]

Core Insights - Tencent Music reported a solid performance for Q2 2025, with total revenue increasing by 17.9% year-on-year to 8.44 billion yuan and adjusted net profit rising by 33.0% to 2.64 billion yuan, exceeding market expectations [1][2] - The growth was primarily driven by the increase in online music service revenue, which accounted for 81.1% of total revenue, marking a significant milestone [1][2] - The number of super members surpassed 15 million, indicating strong user engagement and demand for premium music experiences [3] Revenue Structure - Online music service revenue reached 6.85 billion yuan, a 26.4% increase from 5.42 billion yuan in the same quarter of the previous year, driven by subscription revenue growth and increased advertising services [2] - Subscription revenue specifically grew by 17.1% to 4.38 billion yuan, supported by an increase in average revenue per paying user [2] - The total number of paying users rose by 6.3% to 124.4 million, with average monthly revenue per user increasing from 10.7 yuan to 11.7 yuan [2] Cost Management and Profitability - Operating costs for Q2 2025 were 4.69 billion yuan, up 13.1% year-on-year, mainly due to increased costs related to IP and artist-related expenses [3] - Despite rising costs, the gross margin improved by 2.4 percentage points to 44.4%, attributed to the growth of high-margin subscription services and optimized content sharing ratios [3] - Operating expenses remained stable at 1.16 billion yuan, leading to a significant decrease in expense ratio by 2.3 percentage points to 13.7% due to revenue growth [3] Strategic Initiatives - Tencent Music's "content and platform" strategy has been pivotal in establishing a competitive content ecosystem, facilitating high-quality growth in online music services [5] - The company has created over 300 live performance opportunities for artists through its proprietary IPs, enhancing user engagement and driving super member conversions [5] - Collaborations with major automotive companies aim to improve in-car music experiences, further enriching the membership offerings [5] Expansion Plans - Tencent Music has made strategic acquisitions, including a stake in South Korean SM Entertainment, becoming its second-largest shareholder, which enhances its global positioning [6] - The company has signed an agreement to acquire online audio platform Ximalaya, which will complement its existing music services and strengthen its market position [6]

Core Viewpoint - Tencent Music has demonstrated strong performance in the second quarter, with significant revenue and profit growth, indicating a successful transition towards a quality-driven business model in the music streaming industry [2][10][20]. Financial Performance - Tencent Music's total revenue for Q2 increased by 17.9% year-on-year, while net profit attributable to equity holders rose by 43.2% [2][10]. - Adjusted net profit reached 26.4 billion yuan, reflecting a 33% year-on-year growth, showcasing robust growth potential [2][10]. - The online music service revenue grew by 26.4% to 68.5 billion yuan, significantly outpacing the industry average [4]. User Growth and Engagement - The number of paid online music users increased by 6.3% year-on-year to 124.4 million, marking 26 consecutive quarters of growth [4]. - The average revenue per paying user (ARPPU) rose from 10.7 yuan to 11.7 yuan, a 9.3% increase, indicating enhanced user willingness to pay [4][5]. Strategic Initiatives - The "super membership" strategy has successfully expanded to over 15 million members, enhancing user engagement and payment depth [5]. - Collaborations with international and domestic artists, as well as exclusive content offerings, have enriched the membership experience [5]. Advertising and Ancillary Revenue - Online music advertising revenue saw significant growth, driven by innovative advertising models and a diverse product mix [6]. - The company successfully organized large-scale concerts, contributing to substantial revenue from artist-related activities [6]. Profitability and Cost Management - The gross margin for Q2 improved to 44.4%, up from 34% in the previous year, reflecting effective cost control and a shift towards higher-margin services [11]. - Operating profit increased by 35.5% year-on-year to 29.78 billion yuan, with an operating margin of 35.3% [12]. Long-term Growth Strategy - Tencent Music's acquisition of a 9.38% stake in South Korea's SM Entertainment positions it as a significant player in the global music market, enhancing its content library and market reach [16]. - The potential acquisition of the online audio platform Himalaya aims to expand Tencent Music's offerings from music to a comprehensive audio platform, tapping into the growing "audio economy" [18][19]. Market Outlook - Analysts maintain a positive outlook on Tencent Music, with several institutions issuing "buy" or "overweight" ratings, citing the company's strong growth narrative and strategic initiatives [12].

Core Insights - Tencent Music's Q2 2025 total revenue reached RMB 8.44 billion, marking a 17.9% year-on-year increase, while adjusted net profit rose to RMB 2.64 billion, up 33.0% [1][3] Revenue Breakdown - Online music services generated RMB 6.85 billion, a 26.4% increase year-on-year, with music subscription revenue at RMB 4.38 billion, growing 17.1% [3][4] - The average revenue per paying user (ARPPU) for online music increased from RMB 10.7 to RMB 11.7 year-on-year, with paying user count reaching 124.4 million, a 6.3% increase [3][4] Cost and Profit Analysis - Operating costs rose by 13.1% to RMB 4.69 billion, primarily due to increased costs related to IP, artist-related expenses, and advertising agency fees [5] - Gross profit for the quarter was RMB 3.75 billion, reflecting the company's ability to maintain profitability despite rising costs [3] Strategic Initiatives - The company’s Executive Chairman highlighted that the music subscription business remains the core growth driver, with expanding music-related services such as advertising and concerts showing strong development [4] - Tencent Music facilitated over 300 offline performance opportunities for nearly 100 music artists through its proprietary performance IPs in the first half of 2025 [4]

Core Insights - Tencent Music Entertainment Group reported solid growth in Q2 2025, with total revenue increasing by 17.9% year-on-year to 8.44 billion yuan and adjusted net profit rising by 33.0% to 2.64 billion yuan [1][3][12] - The online music business showed high-quality growth, with online music service revenue up 26.4% to 6.85 billion yuan and online music subscription revenue increasing by 17.1% to 4.38 billion yuan [1][3][12] - The number of paid online music users grew by 6.3% to 124.4 million, and ARPPU (Average Revenue Per Paying User) increased to 11.7 yuan [1][3][12] Group 1: Online Music Business Performance - The online music sector continues to drive Tencent Music's overall performance, supported by a robust content ecosystem and comprehensive music services [3][4] - The company’s "one body, two wings" strategy focuses on expanding content and platform capabilities, enhancing user experience and service innovation [1][3][12] - Tencent Music's super membership user base surpassed 15 million, marking a significant milestone [3][12] Group 2: Market Outlook and Growth Potential - The Chinese digital music industry is experiencing steady growth, with an expanding user base and increasing paid subscriptions, providing a favorable environment for Tencent Music [3][4] - Analysts predict that Tencent Music's online music subscription business will achieve high-quality growth, driven by the increase in paid users and ARPPU [4] - The company is expected to see double-digit growth in online music service revenue in 2025, supported by diverse content offerings [4] Group 3: Content Ecosystem and User Engagement - Tencent Music is enhancing its content ecosystem by expanding high-quality music offerings and creating engaging live events to meet diverse user needs [5][6][8] - Collaborations with well-known artists and strategic partnerships are being leveraged to boost content creation and user engagement [6][8][10] - The introduction of innovative features and exclusive rights for super members is enhancing user retention and driving higher-value user conversions [10][12] Group 4: Future Strategies - Tencent Music aims to deepen partnerships within the music industry and explore innovative growth points to drive sustainable development [12] - The company is committed to creating a vibrant one-stop music service platform that attracts users through high-quality and diverse music content [12]