TME (TME US) Company Update Summary
Core Content Overview
This report provides a detailed analysis of TME's financial performance for 1Q22 and forecasts for the upcoming quarters, highlighting the company's resilience in the face of macroeconomic and regulatory challenges. The report includes revenue and profit figures, key financial ratios, and strategic outlook for the business.
Key Financial Performance
1Q22 Results
- Revenue: -15% YoY, slightly below consensus (-1%) but above the analyst's estimate (+3%).
- Adj. Net Profit: RMB939 million (-24% YoY), 8% above consensus and 4% above the analyst's estimate.
- Margin: Adj. net margin improved to 14.1% (vs. 13.0% estimate), driven by higher GPM (28%) and lower-than-expected S&M expenses, despite higher G&A.
Revenue Breakdown
- Online Music Service: -5% YoY (vs. estimate of -3%), impacted by softer ads and subsidies.
- Subscription: +18% YoY, a key growth driver with 4 million net adds.
- Social Entertainment: -21% YoY (vs. estimate of -25%), affected by regulatory restrictions, macroeconomic conditions, and increased competition.
2Q22E Forecast
- Revenue: Expected to decline by -20% YoY, primarily due to:
- Ads: Shrinking budgets from flash-screen ads and lockdown disruptions, especially in Eastern China.
- Livestreaming: Continuous decline (-30% YoY), with further regulatory tightening in May.
- Adj. Net Profit: Expected to decline by 9%-11% due to the aforementioned challenges.
- Outlook: While ads may see gradual recovery in 2H22E with video ads initiatives, livestreaming headwinds are expected to persist.
Financial Projections
| Financial Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
29,153 |
31,244 |
26,933 |
27,915 |
29,201 |
| Adj. Net Profit (RMB mn) |
4,971 |
4,332 |
3,506 |
3,452 |
3,770 |
| Adj. EPS (RMB) |
3.0 |
2.6 |
2.1 |
2.1 |
2.2 |
| P/E (x) |
8.9 |
10.2 |
12.6 |
12.8 |
11.7 |
Key Financial Ratios
| Ratio |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Gross Margin (%) |
32.4 |
31.5 |
28.0 |
26.8 |
26.6 |
| Operating Margin (%) |
12.2 |
11.6 |
11.3 |
11.4 |
11.1 |
| Adj. Net Margin (%) |
16.4 |
15.8 |
14.1 |
13.0 |
12.9 |
| ROE (%) |
9.4 |
7.4 |
5.7 |
5.3 |
5.5 |
| P/B (x) |
1.5 |
1.4 |
1.6 |
1.6 |
1.5 |
Strategic Outlook
- Subscription Growth: Continued strong performance with +18% YoY revenue growth and sequential ARPU growth.
- Opex Control: Effective cost management helps offset declining GPM, with blended GPM expected to decline by 2ppts YoY to 28%.
- Adj. NPM: Expected to be 13% in FY22E, down 1ppts YoY, due to higher G&A and lower revenue from non-subscription segments.
Investment Recommendation
- Rating: HOLD
- Target Price (TP): US$4.6 (14.8x FY22E P/E)
- Previous TP: US$5.0
- Price Performance: Current Price: US$4.1, Up/Downside: +12.5%
Shareholding and Stock Data
| Metric |
Value (US$) |
| Market Cap (mn) |
6,950 |
| Avg 3 mths t/o (mn) |
89.37 |
| 52w High/Low |
16.53/2.95 |
| Total Issued Shares (mn) |
838 |
Shareholding Structure
| Holder |
% Ownership |
| Baillie Gifford |
5.98% |
| Canada Pension Plan |
4.31% |
| Blackrock |
3.56% |
Share Performance
| Timeframe |
Absolute (%) |
Relative (%) |
| 1-month |
-16.5 |
-5.6 |
| 3-months |
-34.7 |
-21.8 |
| 6-months |
-51.2 |
-34.5 |
Key Insights
- Subscription Resilience: Subscription revenue is a key growth driver, showing strong YoY growth.
- Economic and Regulatory Pressures: Continued impact from the epidemic and tightening regulations in the livestreaming sector.
- Margin Trends: Gross margin is expected to decline, while operating margin remains relatively stable due to effective cost control.
- Earnings Adjustments: CMBIGM has trimmed revenue and earnings forecasts for FY22E-FY24E to reflect the challenges.
Conclusion
Despite headwinds from the epidemic and regulatory changes, TME's subscription business remains a strong performer. The company is expected to maintain its margin stability through efficient opex control, though overall revenue growth is projected to slow. The HOLD rating reflects the cautious outlook, with a revised target price of US$4.6. Investors are advised to consider the report's limitations and consult with financial advisors before making decisions.