1h25 review：在强劲的音乐业务和效率提升方面超预期

1H25 review: earnings beat on strong musicbusiness and enhancedefficiency Target PriceHK$330.00(Previous TPHK$202.50)Up/Downside17.9%Current PriceHK$280.00 NetEase Cloud Musicreported1H25 results: total revenue declined by 6% YoYto RMB3.83bn; adjustedoperatingprofit grew by 35% YoY to RMB905mn,which is equivalent to 57% of our full-year earnings estimates, mainly thanks tothe improved music monetization, solid GPM expansion and S&M expensescontrol.We expect GPM expansion and efficiency gains to continue in2H25/FY26. The company’s GPM/S&M expense ratio (36%/4% in1H25) stillhave room to improve, compared tothatof TME (44%/3%), especially in a stablecompetitive environment likeChina’sonline music sector. We lift our FY25-27operating profit forecast from RMB1.4/1.8/2.0bn to RMB1.7/1.9/2.1bn, mainly toreflect the opex control and GPM expansion. We roll forward our valuationwindow to FY26E, and raise ourtarget price to HK$330.0 on 32x FY26E PE,which is on par with global peers (previous: HK$202.5 on 21x FY25E PE).Maintain BUYon the strong earnings prospect and southbound fund inflow. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Ye TAO, CFAfranktao@cmbi.com.hk Strong music business driven by subscriber growth.Online musicservicesrevenuewas up by 16% YoY to RMB2.97bn in 1H25, within whichmembershipsubscriptionrevenue grew by 15% YoY to RMB2.47bn. MAUsand number of subscribers maintained healthy YoY growth, while monthlyARPPUdeclined slightly YoY in 1H25, mainly due to the change insubscriber mix. Non-subscription music revenue grew by 20% YoY toRMB498mn in 1H25, primarily driven by the solid growth of digital albumsales.Social entertainment and others revenuedeclinedby43% YoY toRMB860mnin1H25,as the company optimizedoperational strategy andproduct design to focus on the core music business.Looking ahead, thecompany willcontinueto focus on diversifyingcontentofferings,optimizingmusiclistening experience,nurturing community,cultivating payingwillingness and improvingprofitability. Joanna Ma(852) 3761 8838joannama@cmbi.com.hk Stock Data Source: FactSet Solid margin expansion on improved monetization and opex control.GPMexpanded to 36.4% in 1H25, up from 32.4%/35.0% in 2H24/1H24,mainly attributable to the improvedmonetizationof online music businessandcost optimization.S&M expenses were down by 56%YoY toRMB163mn in 1H25 and better than our expectation, as the companyadopted ROI-oriented marketing strategy. Leveraging content marketinganduser traffic from NetEase, the companycan acquireusers at a morecost-effective way. Adjusted OPM rose by 7.2pptsYoY to 23.7% in 1H25. 2H25 revenue and margin outlook.Looking into 2H25E, we forecast totalrevenue will recover to positive growth of 4% YoY, mainly fuelled by thesolid online music business andstabilizingsocial entertainment business.We also expectcontinuousmargin expansion on improved monetization ofmusic business and disciplined expenses control, with GPM/adjusted OPMup by 5/6pptsYoY in 2H25E. Source: FactSet Valuation We valueNetEase Cloud MusicatHK$330.0per share based on32x 2026EP/E.Ourtarget PE multiple ison par withtheglobal peers. Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that theanalyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subjectsecurities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded inthe stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform therelevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months CMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: