20230731-招银国际-2Q23_preview__solid_earnings_growth_despite_social_entertainment_business_adjustment_6页_1mb

TME (Tencent Music Entertainment) Q2 2023 Earnings Preview Summary

Key Financial Outlook

• Quarterly Performance: Expected FY23-FY25 revenue lowered by 4-5% due to social entertainment business pressure. Adjusted net income forecasted 50% YoY growth in Q2 2023, driven by improved music business profitability and cost control.

Business Segment Analysis

• Online Music: Strong growth driven by subscription and advertising recovery. Q2 2023 online music revenue projected 36% YoY growth to RMB3.9bn, accounting for 55% of total revenue. Subscription revenue up 31% YoY to RMB2.8bn.
• Social Entertainment: Faced revenue decline due to enhanced risk controls; Q2 2023 revenue estimated 19% YoY decrease. Adjustments include efforts to integrate audio live streaming with music community to offset losses.

Risk and Financial Position

• Revenue pressure in social entertainment may extend to Q4 2023. Gross margin improved to 33.9% for Q2 2023, with non-IFRS net margin rising to 21.6%. Cost control measures supported margin expansion.

Valuation and Ratings

• Target price lowered to US$10.00 (down 40.3% from US$11.20), translating to 17-19 times forward PE. Maintain BUY rating based on resilient earnings growth and attractive valuation at 14x FY23E PE.

Summary Insights

TME faces revenue headwinds from social entertainment adjustments but benefits from strong online music performance and improved margins. Overall earnings outlook remains positive amid strategic changes, supporting the BUY recommendation.