【行业研究报告】腾讯音乐-Expect a year of mild recovery in FY23

22Mar202322Mar2023CMBInternationalGlobalMarkets|EquityResearch|CompanyUpdateTME(TMEUS)ExpectayearofmildrecoveryinFY23TMEannouncedits4Q22financialresultson21March.Totalrevenuedeclined2%YoYtoRMB7.4bnin4Q22,inlinewithconsensusandCMBIestimates.2022Full-yearrevenuedeclined9%YoY,mainlyduetosoftsocialentertainmentandadbusinessesamidmacrouncertainty.However,themusicsubscriptionbusinessremainedresilient,withrevenueup19%YoYinFY22.Despitetherevenuedecline,4Q22non-IFRSnetincomegrew73%YoYtoRMB1.4bnoneffectivecostsandexpensescontrol,andwasinlinewithconsensus/CMBIestimate.Full-yearnon-IFRSnetincomegrew14%YoYtoRMB4.7bn.Managementexpectsonlinemusicquarterlyrevenuetosurpasssocialentertainmentrevenuewithintheyear,andalsoexpectmid-singledigittotalrevenuegrowthandlow-teensnon-IFRSnetprofitgrowthinFY23E.WemaintainFY23-24non-IFRSnetincomeforecastlargelyunchanged.OurDCF-derivedTPisunchangedatUS$10.5.MaintainBUY.ExpectsolidmusicrevenuegrowthinFY23.Onlinemusicservicerevenuegrew24%YoY(3Q22/2Q22:+19%/-2%YoY)andaccountedfor48%oftotalrevenuein4Q22,drivenbystrongsubscriptionandadsrecovery.MAUdeclinedby8%YoYto567mnin4Q22duetothechurnofcasualusersandprudentmarketingcontroltofocusonuserquality.Thenumberofsubscribersgrew16%YoYto88.5mn,withQoQnetadditionof3.2mnandpayingratioupby3.2pptYoYto15.6%in4Q22.Musicsubscriptionwillcontinuetobethemaingrowthdriverwithrevenuegrowthtargetover20%YoYin2023.TMEwillalsodevelopmoremonetizationmethodssuchasad-supportedmodeandsuperVIPmembership.Socialentertainment:expectmilderdeclineinFY23.Socialentertainmentandothersrevenuedecreasedby18%YoY(3Q22/2Q22:-20%/-20%YoY)andrepresented52%oftotalrevenuein4Q22.ThedeclinewasmainlyduetotheintensifyingcompetitionandCOVID-relateddisruptionsin4Q22.In2023managementexpectsmilderrateofdeclineforsocialentertainmentrevenue,asthegrowthofaudiolivestreamingandinternationalbusinesswillpartiallyoffsetthedecreaseoftraditionallivestreamingrevenue.Strongearningsgrowthonefficiencyimprovement.Non-IFRSnetincomedeliveredarobustgrowthof73%YoY,withnetmarginupby8.4pptYoYto19.4%in4Q22,attributabletotheprudentS&Mexpensecontrol(-65%YoY)andimprovementinGPM(+4.1pptYoY).TheManagementexpectfurtherdeclineinS&Mexpenses(butataslowerpacecomparedtoFY22)andalsonetmarginimprovementinFY23.Drivenbysolidonlinemusicrevenuegrowthandoperatingefficiencyimprovement,weforecastnon-IFRSnetincomeCAGRof15%overFY23-25E.TargetPriceUS$10.50(PreviousTPUS$10.50)Up/Downside33.6%CurrentPriceUS$7.86ChinaInternetSaiyiHE,CFA(852)39161739hesaiyi@cmbi.com.hkWentaoLUluwentao@cmbi.com.hkYeTAOfranktao@cmbi.com.hkStockDataMktCap(US$mn)12,497.4Avg3mthst/o(US$mn)8.252wHigh/Low(US$)9.18/3.61TotalIssuedShares(mn)1590.0Source:FactSetShareholdingStructureTencent53.2%Spotify8.2%Source:CompanydataSharePerformanceAbsoluteRelative1-mth-1.9%-0.6%3-mth-0.5%-9.8%6-mth71.6%68.6%Source:FactSet12-mthPricePerformanceSource:FactSetEarningsSummary(YE31Dec)FY21AFY22AFY23EFY24EFY25ERevenue(RMBmn)31,24428,33929,71331,83233,943YoYgrowth(%)7.2(9.3)4.87.16.6Grossmargin(%)30.131.032.734.335.8Operatingprofit(RMBmn)3,8004,4434,9285,8536,829Adjustednetprofit(RMBmn)4,146.04,745.05,450.06,315.87,237.7EPS(Adjusted)(RMB)2.502.963.373.914.48ConsensusEPS(RMB)2.502.963.293.554.39P/S(x)2.83.02.92.72.5P/E(x)48.914.221.117.615.0Source:Companydata,Bloomberg,CMBIGMestimates