TME (TME US) Company Update Summary
Core Content Overview
This document provides an equity research update on TME (TME US), focusing on its financial performance for 4Q21, forecasted performance for FY22E and FY23E, and broader market context within the China Internet sector. The report includes financial data, earnings revisions, and valuation metrics.
Key Financial Performance (4Q21)
- Revenue: Rmb7.6bn, down -8.7% YoY, in line with estimates and consensus.
- Non-GAAP Net Profit: Rmb873mn, down -36% YoY, but above estimates due to lower-than-expected G&A expenses.
- Online Music Service: Rmb2.88bn, up +4.3% YoY, driven by higher paying ratio but offset by weaker ARPPU and ads revenue.
- Social Entertainment: Rmb4.727bn, down -15.2% YoY, affected by regulatory headwinds and competitive pressures.
Forecasted Performance (FY22E)
- Revenue: Forecasted to decline by -5% YoY to Rmb29.575bn.
- Online Music: Expected to grow +12% YoY.
- Social Entertainment: Expected to decline -15% YoY.
- Adj. NPM: Maintained stable at 14%, due to disciplined opex offsetting lower GPM.
- LFA: Expected to achieve GPM breakeven by end of FY22E, due to cost structure shift toward revenue sharing.
1Q22E Outlook
- Revenue: Expected to decline -15% YoY, with online music and social entertainment down -5% and -20% YoY respectively.
Earnings Revisions and Valuation
- Revenue Revisions: Trimmed FY22-23E revenue by 6%, but adjusted earnings by +2%/-1% to reflect margin improvement and uncertainty in social entertainment.
- Target Price (TP): Maintained at US$5.5, which is 14.5x 22E P/E.
- Current Price: US$5.2.
- Up/Downside: +6% from current price.
China Internet Sector Context
- Market Cap: US$8,564 million.
- Average 3-Month Trading Volume: US$88.64 million.
- 52-Week High/Low: US$32.25/US$2.95.
- Total Issued Shares: 835 million.
Shareholding Structure
- Bailie Gifford: 6.17%
- Canada Pension Plan: 4.25%
- Blackrock: 3.36%
Share Performance
- 1-Month: -10.4% absolute, -12.7% relative.
- 3-Month: -15.9% absolute, -9.4% relative.
- 6-Month: -31.8% absolute, -27.8% relative.
Financial Summary
Income Statement (YE 31 Dec)
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
29,153 |
31,244 |
29,575 |
30,210 |
31,603 |
| YoY growth (%) |
14.6 |
7.2 |
(5) |
2.1 |
4.6 |
| Adj. Net Profit (RMB mn) |
4,971 |
4,332 |
4,106 |
3,873 |
4,459 |
| Adj. EPS (RMB) |
3.0 |
2.6 |
2.4 |
2.3 |
2.7 |
| YoY growth (%) |
1.0 |
(13) |
(5) |
(6) |
15.1 |
| P/E (x) |
11.2 |
12.9 |
13.6 |
14.4 |
12.5 |
| P/B (x) |
1.9 |
1.8 |
1.9 |
1.8 |
1.8 |
| ROE (%) |
9.4 |
7.4 |
6.6 |
5.9 |
6.3 |
Cash Flow Summary
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Operating CF (RMB mn) |
4,734 |
4,181 |
4,230 |
4,852 |
6,374 |
| Net change in cash (RMB mn) |
(4,029) |
2,293 |
2,100 |
2,221 |
2,808 |
| Cash (end of yr) (RMB mn) |
11,128 |
13,421 |
15,521 |
17,742 |
20,551 |
Balance Sheet (YE 31 Dec)
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Total Equity (RMB mn) |
52,731 |
58,729 |
62,543 |
66,124 |
70,282 |
| Shareholders’ Equity (RMB mn) |
52,245 |
58,243 |
62,057 |
65,638 |
69,796 |
| BVPS (RMB) |
20.3 |
22.3 |
23.3 |
24.4 |
25.8 |
Key Ratios
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Sales Mix (%) |
|
|
|
|
|
| - Online Music Service |
32.1 |
36.7 |
43.4 |
47.3 |
50.7 |
| - Subscription |
19.1 |
23.5 |
29.8 |
32.6 |
35.1 |
| - Social Entertainment |
67.9 |
63.3 |
56.6 |
52.7 |
49.3 |
| Growth Rate (%) |
|
|
|
|
|
| - Revenue |
14.6 |
7.2 |
(5.3) |
2.1 |
4.6 |
| - Gross Profit |
7.3 |
1.1 |
(6.8) |
(2.4) |
5.5 |
| - Adj. Net Profit |
1.4 |
(12.9) |
(5.2) |
(5.7) |
15.1 |
| P&L Ratios (%) |
|
|
|
|
|
| - Operating Margin |
12.8 |
8.7 |
8.1 |
6.4 |
6.9 |
| - Pre-tax Margin |
15.9 |
11.6 |
12.4 |
11.1 |
12.7 |
| - Adj. Net Margin |
17.1 |
13.9 |
13.9 |
12.8 |
14.1 |
Analyst Recommendation
- Rating: HOLD
- Target Price (TP): US$5.5 (14.5x 22E P/E)
- Reasoning: The analyst maintains a HOLD rating due to the uncertainty in social entertainment and margin improvement, with a lower TP reflecting sector de-rating.
CMBIGM Ratings
- BUY: Stock with potential return of over 15% over next 12 months.
- HOLD: Stock with potential return of +15% to -10% over next 12 months.
- SELL: Stock with potential loss of over 10% over next 12 months.
- NOT RATED: Stock not rated.
- OUTPERFORM: Industry expected to outperform the market.
- MARKET-PERFORM: Industry expected to perform in-line with the market.
- UNDERPERFORM: Industry expected to underperform the market.
Important Disclosures
- The report is for informational purposes only and not investment advice.
- CMBIGM is not a registered broker-dealer in the U.S. and is not subject to U.S. research regulations.
- The report may be subject to change without notice and is not guaranteed to be accurate or complete.
- Investors are advised to consult with a financial advisor before making investment decisions.
Analyst Certification
- The analyst certifies that the views expressed reflect his/her personal views and that there is no direct or indirect compensation tied to the report's content.
- The analyst confirms no trading or conflicts of interest within 30 days before or after the report's issue date.
