【行业研究报告】腾讯音乐-Making progress into scale optimization

18Jan202318Jan2023CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateTME(TMEUS)MakingprogressintoscaleoptimizationTMEonlinemusicbusinessoperatingefficiencycontinuestoimproveprogressivelyamideconomicrecovery.Itisontrackforstrongearningsrebounddespitenear-termtop-linepressure.SocialentertainmentbusinesscontinuestofacepressureasthesurgeofCOVID-19casesimpactcontentsupplyandcompetitionisstillabundant.Throughonlinemusicbusinessmodeloptimizationandleveragingoffparentcousertrafficsynergies,overallcostscontrolcouldhelpstabilizemargins.WeslightlyadjustedFY23/24totalrevenueforecastdownby2/1%toreflectchallengesfacedbythesocialentertainmentbusiness,butraisedFY23/24adjustednetincomeforecastby7/11%inviewofitsbusinessmodeloptimizationandlong-termrecurringincomefromitsonlinemusicservicesbusiness.WerolledforwardvaluationtoFY23EandtheDCF-valuationderivedTPisraisedby54%toUS$10.50,duetoenhancedlong-termprofitprofile,whichtranslatesinto22x/19xFY23/24PE.MaintainBUY.Resilient4Q22Eearningsrebound.For4Q22E,weestimatetotalrevenuedeclinewilldecelerateto4%YoY(3Q22/2Q22:-14/-6%YoY),astheonlinemusicrevenuegrowthreaccelerates.Weforecastonlinemusicrevenuetoincreaseby23%YoYtoRMB3.6bnin4Q22E,drivenbystronggrowthofmusicsubscriptionandrecoveryofadbusiness.Socialentertainmentisexpectedtodropby19%YoYtoRMB3.8bnin4Q22E,slightlybelowourpreviousexpectationasthesurgeofCOVID-19casesinDecemberimpactedlivestreamingcontentsupply.WeforecastGPMtoimprovefrom28.8/32.6%in4Q21/3Q22to32.9%in4Q22E,drivenbycontrolinaudiocontentinvestmentandrecoveryhigher-marginnon-subsmusicbusiness.Weforecastnon-IFRSnetincomewillgrowby76%YoYtoRMB1.5bnin4Q22E,betterthanourpreviousexpectation,mainlyduetoitsstringentbudgetcontrolinsalesandmarketing.RevenuerecoveringinFY23/24E.Lookingahead,weforecasttotalrevenuetoreboundby5/8%inFY23/24E,mainlydrivenbysolidgrowthofonlinemusicbusiness(FY23/24E:+15/15%YoY).MusicsubscriptionwillremainasthekeygrowthdriverwithbalancedgrowthofsubscriberbaseandARPPU,whileadbusinesswillreboundfromthelowbase.Weforecastsocialentertainmentrevenuewilldropby4%inFY23Eduetocompetitivepressure,beforestabilizinginFY24E.TMEwillseestrongoperatingleverageinFY23/24Eafterexpensesoptimizationandtop-linerecovery.Weestimate15%non-IFRSnetincomeCAGRoverFY22-24E.MaintainBUY.WelikeTMEduetoitsresilientearningsgrowthoutlook(>70%YoYearningsgrowthin4Q22Eand15%earningsCAGRoverFY22-24E)amidthemacrobackdrop.TMEremainsastheabsolutemarketleaderintermofcontentandsubscriberbase(TME/CloudMusic:85/38mnmusicsubscribers).TME’scurrentvaluationisfairat16xFY24PEconsideringitsstrongearningsgrowth.ReiterateBUY.TargetPriceUS$10.50(PreviousTPUS$6.84)Up/Downside16.8%CurrentPriceUS$8.99ChinaInternetSaiyiHE,CFA(852)39161739hesaiyi@cmbi.com.hkWentaoLUluwentao@cmbi.com.hkYeTAOfranktao@cmbi.com.hkStockDataMktCap(US$mn)14,442.2Avg3mthst/o(US$mn)6.352wHigh/Low(US$)9.18/3.12TotalIssuedShares(mn)1606.5Source:FactSetShareholdingStructureTencent53.2%Spotify8.2%Source:CompanydataSharePerformanceAbsoluteRelative1-mth14.8%16.7%3-mth128.2%119.3%6-mth102.5%105.6%Source:FactSet12-mthPricePerformanceSource:FactSetEarningsSummary(YE31Dec)FY20AFY21AFY22EFY23EFY24ERevenue(RMBmn)29,15331,24428,25429,55631,825YoYgrowth(%)14.67.2(9.6)4.67.7Grossmargin(%)31.930.130.933.234.8Netprofit(RMBmn)4,176.03,215.03,737.63,996.04,789.3Adjustednetprofit(RMBmn)4,949.04,146.04,774.65,415.96,287.5EPS(Adjusted)(RMB)2.992.502.973.373.91ConsensusEPS(RMB)2.992.502.883.143.43P/S(x)3.33.13.43.33.0Non-IFRSP/E(x)19.723.520.418.015.5Source:Companydata,Bloomberg,CMBIGMestimates