20211110-招银国际-Prudent_on_4Q21E___FY22E_topline_growth_4页_837kb

TME (TME US) Company Update Summary

Core Content

CMB International Securities has issued an equity research update on TME (TME US), highlighting its financial performance and future outlook for the next few fiscal years. The report is cautious about future growth and provides revised forecasts based on current market conditions and internal guidance.

Main Points

3Q21 Performance

• Revenue: Increased by 3% YoY, slightly above the consensus.
• Adj. Net Profit: Decreased by 21% YoY, but 27% above consensus.
• Subscribers: Maintained 5 million net adds, showing resilience in the music segment despite regulatory challenges.
• Margin Performance: Improved GPM and lower-than-expected S&M expenses contributed to better-than-expected margin performance.

4Q21E and FY22E Forecasts

• Rev Guidance: Revised to +8% YoY for FY21E and +5% YoY for FY22E, reflecting soft ads, social entertainment, and digital albums.
• Segment Performance:
  • Music: Expected to grow 13%-15% YoY.
  • Social Entertainment: Forecast to be flat YoY due to intensified competition and regulatory uncertainty.
• Subs Net Adds: Estimated at 4-5 million for 4Q21E.
• ARPU: Expected to decline QoQ.

FY22E Outlook

• Rev Growth: Forecasted at +5% YoY.
• Adj. NPM: Estimated at 12.2%.
• Segment Growth:
  • Music: +22% YoY.
  • Social Entertainment: -5% YoY.
• Long-form Audio MAU: Reached 140 million, with 5 million paying users in 3Q21.

Key Financial Forecasts

Revenue (RMB mn)

• FY19A: 31,518
• FY20A: 32,968
• FY21E: 35,159
• FY22E: 32,968
• FY23E: 35,159

Adj. Net Profit (RMB mn)

• FY19A: 3,989
• FY20A: 4,022
• FY21E: 4,356

P/E and P/B

• P/E (x): 17.1 (FY19A), 16.9 (FY20A), 21.1 (FY21E), 20.9 (FY22E), 19.3 (FY23E)
• P/B (x): 3.3 (FY19A), 2.9 (FY20A), 2.7 (FY21E), 2.6 (FY22E), 2.4 (FY23E)

Target Price

• Current TP: US$9
• Previous TP: US$10.0
• Upside/Downside: +12.5% relative to current price of US$8.0

Shareholding and Performance

• Market Cap (US$ mn): 13,202

• Shareholding Structure:

  • Pacific Alliance: 6.01%
  • Baillie Gifford: 5.46%
  • Invesco: 4.13%

• Share Performance:

  • 1-month: +5.0%
  • 3-months: -25.4%
  • 6-months: -51.5%

Key Ratios

• ROE (%): 11.2 (FY19A), 9.4 (FY20A), 6.8 (FY21E), 6.5 (FY22E), 6.6 (FY23E)
• Operating Margin (%): 8.0 (FY21E), 7.1 (FY22E)
• Adj. Net Margin (%): 12.7 (FY21E), 12.2 (FY22E)
• Effective Tax Rate (%): -11.6 (FY21E), -15.0 (FY22E)

CMBIS 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 by CMBIS
• 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

Analyst Certification

• The research analyst certifies that the views expressed reflect his or her personal views.
• No compensation is directly or indirectly related to the views in the report.
• No trading activity in the covered stocks within 30 days before the report's release or 3 days after.

Disclosures

• Investment Banking Relationship: CMBIS has a relationship with the issuers covered in the report.
• Conflicts of Interest: CMBIS may have a conflict of interest, and will not assume responsibility for it.
• Use Restrictions: The report is intended for intended recipients only and cannot be reproduced or distributed without written consent.

Conclusion

The report is prudent on future growth, with HOLD rating due to headwinds from social entertainment and ads. TME's music segment remains strong, but other segments are under pressure. Margin improvements and subscriber growth have been noted, but revenue growth is expected to slow down in the near term. Investors are advised to consult with a financial advisor and evaluate independently.