TME (TME US) is expected to maintain robust growth in its online music business despite macro uncertainty. The company's online music subscription revenue is expected to grow by 41% YoY and advertising revenue is expected to recover, driving online music revenue to grow by 36% YoY in Q4, reaching RMB 49 billion. TME is expected to continue focusing on quality growth by adding 300,000 new paid users per quarter and strengthening its partnership with WeChat to expand its user base and capture new monetization opportunities. The company's social entertainment revenue is expected to decline by 53% YoY and 9% MoM in Q4 due to strengthened risk control measures. However, we expect social entertainment revenue to stabilize in 2H24E. TME's profitability is expected to remain on track due to effective cost control and improved music business economics. TME's GPM is expected to grow by 4.1% YoY and 1.4% MoM in Q4, reaching 37.1%, and its adjusted net profit margin is expected to increase from 19.4% in Q4 to 22.5% in Q4. TME is expected to continue focusing on its quality growth strategy and expand its profit margin. We forecast TME's non-IFRS net income to grow at a 15% CAGR in 2023-25E, with a non-IFRS net margin increasing from 17% in 2022 to 24% in 2025E. The stock is trading at a price of USD 8.42, with a 15.8% increase in price target to USD 9.75.
