腾讯音乐（TME）：持有价格的防御性增长

Tencent Music(TME US) EquitiesMedia Hold:Defensive growth in price China ◆SVIP growth momentum continues,supporting ARPU growth MAINTAIN HOLD ◆High lifetime valueusersremain in focus amid keenercompetition TARGET PRICE(USD)PREVIOUS TARGET(USD)14.5014.00 ◆Maintain Hold, slightly lift TP to USD14.50from USD14.00 SVIPremains a key driver:Super VIP's (SVIP) contribution to Tencent Music (TME)'soverallARPU improvement has kicked in earlier than expected,driven mainly by growingnumber ofSVIPsin 1Q25. Going forward, we expect ARPU to outpace net adds to drivegrowth in paid music. Within ARPU, SVIP is expected to remain a vital force alongsideefforts to reduce discountsfor regular members.We did not change estimates for paidmusic but lifted overall revenue in 2025-27ejust shy of 1% on higher non-subscriptionrevenue. WeseeTMEsteppingupefforts toexpandits offerings to offline eventssuch asconcerts, artist-related merchandise and long-form audios. More diversified offerings canpotentiallyhelp improvetheSVIP experience, boosting our confidence in ARPU uptickwithin paid music. Wekeep GPM largely unchanged,but welift 2025-27e earnings by2-3% factoringinbetter G&A efficiency,despiteour marginal increase inmarketing expenseaswe expect TME to increase efforts todefend its market share amidkeenercompetition.All inall, we liftour TP to USD14.50(from USD14.00), implying c1% upside.As theshares arerading at18x 2025e PE vs12% 2025-27e EPS CAGR,we thinkvaluationlooks fair and we retainourHoldrating. Response tocompetition: According to QuestMobile, TME is losing time spent share toNetEase and Soda Music(Ex.6). Moreover, both competitors are adoptingamoreprudent pricing strategy (NetEase MusicmonthlyARPU atcRMB7in 2024e consensusand tag price of Soda membership at RMB8) vs. TME (RMB11.4in 1Q25). While TMEhas plans to lift marketingspending on user acquisition,we expect it tofocus on userswith higher lifetime value. This allow them more room tocontinuetonarrowthediscountofferedto green diamond users, andyielding up SVIP users throughenhancing its uniqueservicesofferings. As mentioned above,long-form audiois one of the new focusareasandisseen as importantcomplementary contentto providingholistic music entertainmentservices to usersby TME. Management believes it can help improve penetration andretention for SVIPusersin the long run. Given content will mainly be sourced externally,the business is margin-dilutive to the overall business atthecurrent stage. Charlene Liu*Head of Internet and Gaming Research, Asia PacificThe Hongkong and Shanghai Banking CorporationLimited, Singapore Branchcharlene.r.liu@hsbc.com.sg+65 6658 0615 Christina Chen*, CFAAnalyst, Internet ResearchThe Hongkong and Shanghai Banking Corporation Limitedchristina.z.chen@hsbc.com.hk+852 2822 2912 1Q25earnings beat:TME 1Q25 non-GAAP earnings slightly beat HSBCe/consensus by4%/5% againsta1% beat inthetopline. The slight revenue beat is driven by better-than-expected paid musicandsocial entertainment which was partly offset by weaker-than-expected non-subscription music revenue. Non-GAAP NPM came in 1.0ppt/1.1ppt highervs. HSBCe/consensus, driven by lower-than-expected selling expense and G&A. InMarch 2025, TME received a 2% equity interests of Universal Music Group through adistribution-in-kind fromthe disposal ofone of its associates.For2Q25e, we expect TMEto record12% y-o-y revenue growth and20% y-o-ynon-GAAP net profit growth. Jessie Lu*, CFAAnalyst, Internet and Gaming Research The Hongkong and Shanghai BankingCorporation Limitedjessie.x.lu@hsbc.com.hk+852 2996 6570 * Employed by a non-US affiliate of HSBC Securities (USA) Inc, and isnot registered/ qualified pursuant to FINRA regulations Issuer of report:The Hongkong and ShanghaiBanking Corporation Limited, Singapore Branch Disclosures & DisclaimerThis report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it.MDDI (P) 005/01/2025 MDDI (P) 006/09/2024 MDDI (P) 004/10/2024 MDDI (P) 020/10/2024 View HSBC Global Research at:https://www.research.hsbc.com Financials & valuation:Tencent Music Resultssnapshot for1Q25 Total revenuegrew 9% y-o-y to RMB7.4bn, 1% ahead of HSBCe and consensus. Online musicrevenue was cRMB5.8bn (+16% y-o-y), 1% ahead of HSBCe or largely inline with consensus. 1)Revenue frompaid musicgrew 17% y-o-y to RMB4.2bn, 1% ahead of HSBCe andconsensus. This was driven by an 8% y-o-y growth in paying users to 123m (largelyin line with our estimate) and a 8% y-o-y growth in ARPU (RMB11.4, 1.6% ahead ofHSBCe). -Online music MAU continued to decline at 4% y-o-y to 555m. 2)Growth of revenue fromnon-subscription (including ads)slightly rebounded to14% y-o-y (from 12% y-o-y in 4Q24) on alow base, but missed HSBCe andconsensus by 2%. ◆Social entertainment(SE) was 1%/5% above HSBCe/consensus, declined 12% y-o-y toRMB1.6bn. ◆GPMincreased by 3.1ppt y-o-y to 44.1%, slightly beatingHSBCe and consensu