20260213-招银国际-网易云音乐-09899.HK-2H25_revenue_miss_on_soft_non-subscription_business_intact_FY26_earnings_growth_outlook_5页_786kb

NetEase Cloud Music (9899 HK) Summary

Core Content

NetEase Cloud Music released its FY25 financial results, revealing a total revenue decline of 2% YoY to RMB7.76bn, slightly below the Bloomberg consensus estimate of RMB7.91bn. However, adjusted net profit increased by 68% YoY to RMB2.86bn, matching the consensus. Excluding the impact of deferred income tax credit, adjusted operating profit rose by 32% YoY to RMB1.73bn. The share price fell over 9% on 12 Feb due to two key concerns: a deceleration in online music revenue growth to +8% YoY in 2H25 (down from +16% YoY in 1H25), and a 1.4ppts decline in GPM in 2H25 compared to 1H25.

The decline in online music revenue growth and GPM contraction was primarily due to a drop in revenue from higher-margin non-subscription businesses, while the music subscription business remained strong in 2H25. As a result, the FY26 total revenue forecast was slightly lowered by 1% to RMB8.4bn, mainly driven by the softness in non-subscription businesses. The target price was trimmed to HK$245.0, based on a 23x FY26E non-GAAP PE, due to the sector's valuation decline. Despite the revised target price, the company is still seen as offering attractive risk-reward on its current valuation of 15x FY26E PE, supported by a solid FY26E adjusted operating profit growth outlook.

Main Points

• FY25 Revenue: RMB7.76bn, down 2% YoY.
• Adjusted Net Profit: RMB2.86bn, up 68% YoY.
• Adjusted Operating Profit: RMB1.73bn, up 32% YoY.
• Share Price: Declined over 9% following the results.
• 2H25 Revenue Growth: Online music revenue grew by 8% YoY, down from 16% YoY in 1H25.
• Non-subscription Revenue Decline: 7% YoY, mainly due to digital album sales.
• Social Entertainment Revenue: Fell 17% YoY to RMB905mn, but stabilized and grew 5% HoH.
• GPM Decline: 1.4ppts in 2H25 compared to 1H25, but overall GPM increased by 2.7ppts YoY to 35.0%.
• Operating Margin: Improved by 4.6ppts YoY to 21.1%.
• Target Price: HK$245.0 (down from HK$330.0), based on 23x FY26E non-GAAP PE.
• Valuation: Current valuation (15x FY26E PE) is considered attractive with strong growth outlook.

Key Financial Highlights

Revenue Growth

• FY24A: RMB7,950mn (+1.1% YoY)
• FY25A: RMB7,759mn (-2.4% YoY)
• FY26E: RMB8,419mn (+8.5% YoY)

Gross Margin

• FY24A: 35.7%
• FY25A: 35.7%
• FY26E: 37.0%

Operating Profit

• FY24A: RMB1,622.0mn
• FY25A: RMB1,622.0mn
• FY26E: RMB1,925.0mn (+18.7% YoY)

Adjusted Net Profit

• FY24A: RMB2,858mn
• FY25A: RMB2,857.6mn
• FY26E: RMB2,135.5mn (-25.3% YoY)

Adjusted EPS (RMB)

• FY24A: 13.54
• FY25A: 13.54
• FY26E: 10.12

P/E (non-GAAP)

• FY24A: 11.2
• FY25A: 15.4
• FY26E: 14.2

P/S

• FY24A: 4.0
• FY25A: 3.7
• FY26E: 3.5

Outlook

• FY26E Revenue Growth: Expected to grow by 8.5% YoY.
• Music Subscription Revenue: Projected to increase by 13% YoY to RMB5.7bn, driven by growth in subscriber base and ARPPU.
• Adjusted Operating Profit: Expected to rise by 19% YoY, supported by music revenue growth and efficiency improvements.
• OPM: Expected to increase by 2ppts YoY.

Analyst Recommendation

• Rating: BUY (Maintain)
• Target Price: HK$245.0 (down from HK$330.0)
• Current Price: HK$165.40
• Upside/Downside: 48.1%

Key Metrics

Valuation Table

Analysts

• Saiyi HE, CFA: (852) 3916 1739 | hesaiyi@cmbi.com.hk
• Wentao LU, CFA: luwentao@cmbi.com.hk
• Ye TAO, CFA: (852) 3850 5226 | franktao@cmbi.com.hk

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over next 12 months.
• OUTPERFORM: Industry expected to outperform the relevant broad market benchmark.
• MARKET-PERFORM: Industry expected to perform in-line with the relevant broad market benchmark.
• UNDERPERFORM: Industry expected to underperform the relevant broad market benchmark.

Risk & Disclaimer

• The report is not tailored to individual investors and is not an offer or solicitation to buy or sell securities.
• The value of investments is uncertain and may fluctuate.
• CMBIGM does not assume responsibility for any loss or damage incurred from reliance on the report.
• The information is subject to change without notice.