20250319-招银国际-4Q24_earnings_beat__driving_quality_growth_in_FY25_6页_1mb

TME (TME US) 4Q24 Earnings Summary and Outlook

Core Financial Performance (4Q24)

• Total Revenue: RMB7.5bn, up 8% YoY, slightly above Bloomberg consensus estimate.
• Non-IFRS Net Income: RMB2.28bn, up 45% YoY, 15% ahead of consensus estimate.
• Gross Margin: 43.6%, up 5.3ppt YoY and 1.0ppt QoQ, driven by better-than-expected GPM expansion and opex control.
• Non-IFRS Net Margin: 30.6%, up 7.7ppt YoY.
• Subscriber Growth: QoQ net addition of 2.0mn subscribers, total subscribers at 121mn (up 13% YoY).
• Monthly ARPPU: RMB11.1, up 4% YoY.
• Subscription Revenue: RMB4,032mn in 4Q24, up 18% YoY.
• Non-Subscription Revenue: RMB1,799mn in 4Q24, up 12% YoY.

Business Highlights

• Online Music Revenue: RMB5.8bn, up 16% YoY, with subscription revenue up 18% and non-subscription up 12%.
• Advertising Revenue: Strong YoY growth in 4Q24, driven by ad-supported mode.
• Social Entertainment Revenue: Declined 13% YoY but increased 6% QoY to RMB1.6bn, with WeSing contributing positively.
• TME's Strategy: Focus on quality growth in FY25, with expectations of revenue acceleration and margin expansion.

Financial Forecasts (FY25E)

• Total Revenue: RMB31.0bn, up 9% YoY.
• Online Music Revenue: Up 16% YoY to RMB12.0bn.
• Social Entertainment Revenue: Down 14% YoY to RMB10.0bn.
• Non-IFRS Net Income: RMB8,881.6mn, up 15.8% YoY.
• Gross Margin: Expected to expand by 3ppt YoY to 45%.
• Non-IFRS Net Margin: Expected to expand by 2ppt YoY to 29%.
• EPS (Adjusted): RMB5.67, up 15.8% YoY.
• Consensus EPS: RMB5.57, slightly below CMBIGM forecast.

Valuation and Target Price

• Target Price (TP): US$16.50, up 3% from previous TP of US$16.00.
• DCF Valuation: Based on WACC of 11.6% and terminal growth of 2.5%.
• Net Cash Valuation: RMB185,538mn, leading to TP of US$16.50 per ADS.
• Current Price: US$15.09.
• Up/Downside: 9.3%.
• P/E Ratio (FY25E): 20.6x, down from 23.6x in FY24A.

Shareholder Returns

• Cash Dividend: US$273mn.
• Share Repurchase Program: 2-year program of US$1bn, representing ~6% of market cap.

Shareholding Structure

• Tencent: 52.5%.
• Spotify: 8.2%.

Stock Performance

• 1-Month Return: 15.2% (Absolute), 32.0% (Relative).
• 3-Month Return: 28.0% (Absolute), 41.7% (Relative).
• 6-Month Return: 52.0% (Absolute), 56.4% (Relative).
• 52-Week High/Low: US$15.49 / US$9.46.

Financial Summary (Selected Metrics)

• Revenue Growth (YoY): FY25E is expected to grow 9.2%.
• Gross Profit Growth (YoY): FY25E is expected to grow 16.2%.
• Operating Profit Growth (YoY): FY25E is expected to grow 14.3%.
• Adj. Net Profit Growth (YoY): FY25E is expected to grow 15.8%.
• ROE: Expected to rise to 11.6% in FY25E.
• Current Ratio: Expected to increase to 2.4x in FY25E.
• Receivable Turnover Days: Expected to increase slightly to 41.8 days.
• Payable Turnover Days: Expected to increase to 141.3 days.

CMBIGM Ratings

• BUY: Stock with potential return of over 15% over next 12 months.

Analyst Certification

• The analyst certifies that the views expressed accurately reflect personal views and confirms no conflicts of interest.

Risk Disclaimer

• There are risks involved in transacting in any securities. Past performance is not indicative of future performance. Investors are advised to consult a professional financial advisor.