3Q25回顾：投资以扩大音乐产品供应

3Q25 review: investing to expand musicproduct offerings Target PriceUS$28.00(PreviousTPUS$29.50)Up/Downside47.3%Current PriceUS$19.01 TMEannounced 3Q25 results:total revenue increased by 21%YoY toRMB8.46bn, and non-IFRS net income was up by 33% YoY to RMB2.41bn, 3%and 4% ahead ofBloombergconsensus respectively,mainly thanks to thebetter-than-expected revenue growth of non-subscription music businesses(+51% YoY) like ads and offline performances. We expect total revenue growthwill decelerate to +12% YoY in 4Q25E, largely in line with consensus, mainlydue to the normalisation of revenue from offline performances.ForFY26E, thecompany will further step up investment in content and new monetizationopportunities such as offline performance and artist-related merchandise, whichmaydrive sustainable revenue growth but impact short-term margins, in ourview. We lower our FY26-27E earnings forecast by 3-5% in light ofthe increasedinvestment. We lower our DCF-derived TP to US$28.0 (previous: US$29.50based on DCF). Maintain BUY. China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Wentao LU, CFAluwentao@cmbi.com.hk Ye TAO, CFAfranktao@cmbi.com.hk Strong online musicbusinesssupported bymultipledrivers.Onlinemusicrevenue grew by 27%YoY to RMB6.97bn in 3Q25:1)musicsubscription revenue was up by 17% YoY to RMB4.50bn (53% of totalrevenue), withthenumber of subscribers up by 6% YoY to 125.7mn andmonthly ARPPU up by 11% YoY to RMB11.9.The solid ARPPU growth wasmainly driven by the expansion of SVIP program. 2)Non-subscriptionmusicrevenue grew by 51% YoY to RMB2.47bn (29% of total revenue), primarilydue to the robust YoY growth of revenue from offline performances, ads andartist-related merchandise. Revenue from offline performances maintainedstrong momentum, as the company hosted 14 sold-out concerts for G-DRAGONin 3Q25, attracting over 150kattendees.Ad revenue alsodeliveredsolid YoY growth, driven byinnovations in ad formats.Social entertainmentand others revenuedroppedby3% YoYtoRMB1.49bnin 3Q25. Joanna Ma(852) 3761 8838joannama@cmbi.com.hk Stock Data Online music business to sustain solid growth in 4Q25E.For4Q25E,we forecasttotal revenue to increase by 12% YoY, driven by the solidgrowthof both music subscription/non-subscription revenue(+14/27%YoY). We expectmusic subscription business to maintain solid momentumin 4Q25E, thanks to the balanced growth of subscribers andARPPU (+5%and +9% YoYon our estimates);and non-subscription revenue growth todecelerate,mainly due to the normalisation of revenue from offlineperformances. Investinginnew opportunities.Overall GPM was 43.5% in 3Q25, up by0.9ppt YoY but down by 0.9ppt QoQ, mainly due to the increased costsrelated to offline performances and artist-related merchandise. Non-IFRS netmargin increased by 2.6ppt YoY to 28.4% in 3Q25. Looking ahead, TME willstep up investment in new opportunitiesaroundoffline performancesandartist-related merchandise. As lower-margin non-subs businesses outpaceoverall growth, we expect overall GPM to decline by 0.8ppt YoY in FY26E. Source: FactSet Business forecasts updateand valuation DCF valuation Our target priceof US$28.0is based on the DCF valuationmethodology(WACC of9.6%and terminal growth of3.0%, both unchanged). 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 the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities 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 in the 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 covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 months: Stock with potential return of +15% to-10% over next 12 months: Stock with potential loss of over 10% over next 12 months: Stock is not rated byCMBIGM HOLDSELLNOT RATED :Industry expected to outperform the relevant 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: 4