【行业研究报告】云音乐-Solid core music business outlook on enriching content library

6Jan20236Jan2023CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateCloudMusic(9899HK)SolidcoremusicbusinessoutlookonenrichingcontentlibraryCloudMusicisontherighttrackofimprovingmonetizationandexpandingmargin.Announcedon1January,CloudMusicaddedlicensingagreementwiththeleadingTaiwanmusiclabelBin-Musicwhichfurtherenricheditscontentlibraryandrepresentedanothermilestonesincetheendofexclusivelicensing.Weremainbullishonthecompany’smusicsubscriptionbusiness,supportedbyitsenrichingcontentlibraryandrisingpayingratio.WelowerFY22/FY23/FY24totalrevenueby2/7/9%toRMB8.9/10.8/12.8bntoreflectmoreconservativeviewonsocialentertainmentbusiness,whichfacesmacroheadwindsandintensifyingcompetition.WelowerourFY23/FY24Eadjustednetincomeforecastto-RMB59mn/+RMB529mn(previous:+RMB75/+535mn).Wenowexpectthecompanytoachieveaquarterlybreakevenbyend-FY23E,supportedbyitsgrossmarginimprovement.WerollforwardourvaluationtoFY23EandderivedourtargetpriceofHK$108.6(previous:HK$110.0)basedonDCFmethod.MaintainBUY.Onlinemusicbusinesstoacceleratefrom2H22onwards.Weforecastonlinemusicrevenuetogrowby15/23/19%YoYtoRMB1.9/4.6/5.4bnin2H22/FY23/FY24E(1H22:+11%YoY),drivenbythesolidmusicsubscriptiongrowthandrecoveryofadbusiness.On1Jan,thecompanyannouncedlicensingagreementwithBin-Music,thecopyrightholderofseveraltopsingerssuchasMaydayandJonathanLee.Theenrichingcontentlibrarycouldhelponusertrafficandsubscribergrowthinourview.WeestimateMPUstoincreaseby37/22/18%YoYinFY22/FY23/FY24E,withpayingratiorisingto28.5%inFY24E(FY21:15.8%).Fornon-subscriptionbusiness,CloudMusiclaunchedthefreemiummodein4Q22torevitalizeitsadbusiness.Drivenbyrecoveryofaddemandandnewinitiatives,weexpectadrevenuewillreturntopositivegrowthinFY23/FY24E.Expectsocialentertainmentbusinesstorecoverin2023.Socialentertainmentbusinessfacesintensifyingcompetitionfromotherentertainmentformats.TheresurgenceofCOVID-19andthemacroimpactin4Q22alsopressuresocialentertainmentrevenuegrowth.Weexpectdeceleratingrevenuegrowthfrom4Q22onwards.Weforecastthesegmentrevenuetogrow40/20/18%YoYtoRMB5.2/6.2/7.3bninFY22/FY23/FY24E,withitsmonthlyARPPUnormalizingfromRMB452inFY21toRMB286inFY24E.Steadymarginexpansionmayhelpreachingtheprofitabilitytarget.WeexpectCloudMusic’sgrossmargintoexpandsteadilyfrom2.0%inFY21to13.7/17.1/21.1%inFY22/FY23/FY24E,thankstotheoptimizedcoststructure.CloudMusic’sgrossmarginstillhasamplepotentialcomparedtothatofTME(30.1%inFY21).Theimprovinggrossmarginwillsupportadjustednetmargintoimprovefrom-14.9%inFY21to-4.0/-0.5/+4.1%inFY22/FY23/FY24E,basedonourestimate.CloudMusicistradingat1.7x2023EPS,atanattractivediscountcomparedwithTME(3.5x2023EPS).TargetPriceHK$108.60(PreviousTPHK$110.00)Up/Downside8.6%CurrentPriceHK$100.00ChinaInternetSaiyiHE,CFA(852)39161739hesaiyi@cmbi.com.hkWentaoLUluwentao@cmbi.com.hkYeTAOfranktao@cmbi.com.hkStockDataMktCap(HK$mn)20,799.5Avg3mthst/o(HK$mn)69.252wHigh/Low(HK$)145.70/53.15TotalIssuedShares(mn)208.0Source:FactSetShareholdingStructureNetEase61.4%Alibaba9.9%Source:CompanydataSharePerformanceAbsoluteRelative1-mth30.5%20.9%3-mth43.9%23.5%6-mth25.9%29.4%Source:FactSet12-mthPricePerformanceSource:FactSetEarningsSummary(YE31Dec)FY20AFY21AFY22EFY23EFY24ERevenue(RMBmn)4,8966,9988,88910,78912,769YoYgrowth(%)111.242.927.021.418.4Grossmargin(%)(12.2)2.013.717.121.1Adjustednetprofit(RMBmn)(1,568.0)(1,043.7)(352.3)(59.2)528.7EPS(Adjusted)(RMBcents)(1,283.90)(502.37)(169.39)(28.48)254.18ConsensusEPS(RMBcents)(1,283.90)(502.37)(264.67)36.14257.32P/S(x)3.72.62.11.71.4P/E(x)nananana45.7Source:Companydata,Bloomberg,CMBIGMestimates