20260318-招银国际-4Q25_review_Stepping_up_investment_to_drive_long-term_sustainable_growth_6页_660kb

TME (TME US) 4Q25 Review Summary

Core Content

TME (TME US) released its 4Q25 financial results, showing strong year-over-year growth in total revenue and non-IFRS net income. The company is focusing on driving long-term sustainable growth through increased investment in content and marketing, despite short-term pressures from competition in the music subscription segment.

Key Financial Performance

• Total Revenue: Increased by 16% YoY to RMB8.64bn in 4Q25, surpassing the Bloomberg consensus estimate by 3%.
• Non-IFRS Net Income: Rose by 9% YoY to RMB2.49bn, aligning with the consensus.
• FY25 Total Revenue/Non-IFRS Net Income: Grew by 16% and 25% YoY to RMB32.90bn and RMB9.59bn respectively.
• FY26E Forecast: Anticipates 10% YoY revenue growth, with music subscription revenue up by 6% and non-subscription revenue up by 25%.
• GPM (Gross Margin): Improved to 44.7% in 4Q25, up 1.1ppt YoY and 1.2ppt QoQ.
• Non-IFRS Net Margin: Remained largely stable at 28.8% in 4Q25, but is expected to decline slightly by 0.5ppt YoY to 28.6% in FY26E.
• Dividend: Announced an annual dividend of US$0.24 per ADS, yielding approximately 2%.

Revenue Breakdown

• Online Music Revenue: Grew by 22% YoY to RMB7.10bn in 4Q25, with:
  • Music Subscription Revenue: Increased by 13% YoY to RMB4.56bn, representing 53% of total revenue.
    • Subscribers grew by 5% YoY.
    • Monthly ARPPU increased by 8% YoY.
  • Non-Subscription Music Revenue: Surged by 41% YoY to RMB2.53bn, driven by offline performances and advertising.
    • Hosted 20 concerts for G-DRAGON in 2025, including 2 sold-out events.
• Social Entertainment Revenue: Declined by 5% YoY but increased by 3% QoQ to RMB1.54bn in 4Q25.

Earnings and Valuation

• Earnings Forecast:
  • FY26E: Adjusted net profit expected at RMB10,311mn, with adjusted EPS at RMB6.6.
  • FY27E: Adjusted net profit expected at RMB11,213.4mn, with adjusted EPS at RMB7.21.
  • FY28E: Adjusted net profit expected at RMB12,181.2mn, with adjusted EPS at RMB7.84.
• Earnings Revisions:
  • Adjusted net profit forecast for FY26E and FY27E has been trimmed by 4–10% due to increased investment and competition.
  • DCF-derived Target Price: Reduced to US$20.0 from US$28.0.
• P/E Ratio:
  • 12.5x for FY26E and 11.7x for FY27E.
• Current Price: US$11.37, with a 12-month price performance of -55.0% absolute and -55.1% relative.

Business Forecasts and Strategy

• Investment Strategy: TME is increasing content and marketing investment to strengthen its competitive position, especially in the music subscription segment.
• Outlook for 1Q26E:
  • Total revenue forecast to grow by 7% YoY to RMB7.90bn.
  • Music subscription revenue growth to decelerate due to intensified competition.
  • Non-subscription music revenue to continue strong growth, supported by offline performances and artist-related merchandise.
• Long-Term Outlook: TME's music business is viewed as sustainable and growth-oriented, with continued investment across the music value chain and strategic artist collaborations.

Shareholding and Stock Data

• Market Cap: US$17,437.3mn.
• Shareholding Structure:
  • Tencent: 53.0%
  • Spotify: 9.1%
• Share Performance:
  • 12-month price performance: -55.0% absolute, -55.1% relative.

Valuation and Investment Recommendation

• Valuation per ADS: US$20.0, based on DCF valuation with unchanged WACC (9.6%) and terminal growth (3.0%).
• Investment Recommendation: BUY (Maintain), with a target price of US$20.00.
• Analyst Certification: The analyst certifies that the views expressed reflect personal opinions and are not influenced by compensation or conflicts of interest.
• Ratings:
  • BUY: Stock with potential return of over 15% over the next 12 months.
  • HOLD: Stock with potential return of +15% to -10% over the next 12 months.
  • SELL: Stock with potential loss of over 10% over the next 12 months.
  • NOT RATED: Stock not rated by CMBIGM.
  • 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.

Disclaimer and Risk Information

• Investment Risks: There are risks involved in transacting in any securities. Past performance does not guarantee future results.
• CMBIGM's Role: CMBIGM does not provide individually tailored investment advice and recommends that investors consult with a professional financial advisor.
• Legal Restrictions:
  • This report is for distribution to specific investors and may not be reproduced or shared without prior consent.
  • In the U.S., the report is only for "major U.S. institutional investors."
  • In the U.K., it is only for persons falling within Article 19(5) of the Financial Services and Markets Act 2000 or Article 49(2)(a) to (d).
  • In Singapore, it is distributed by CMBISG, an Exempt Financial Adviser.

Financial Summary

Conclusion

TME continues to show strong revenue growth in its online music segment, driven by the non-subscription music business. Despite short-term challenges in the music subscription segment due to increased competition, the company is investing in content and marketing to build a sustainable competitive moat. The updated DCF valuation has led to a lower target price, but the company's current valuation and growth prospects still support a BUY rating. Investors are advised to consider the risks and consult with a financial advisor before making investment decisions.