We expect TME to report 4Q24 results in mid-March 2025. We model an in-line quarter with 6% YoY topline and 27% adj, NPM. +2.0m quarterly music paying net adds to 121.0m subs and 2% QoQ monthly ARPPU of RMB11.0 drive 17% YoY music subs revenue. We deem Co. will enhance monetisation capabilities and improve commercialistion efficiencies leveraging their core music content and integrated infrastructures to achieve sustainable music growth along the road. Coupled with well-executed buyback and annual dividend policies, maintain BUY with new TP of US$13.0/ HK$51.0.
　　Key Factors for Rating
　　Dedicated strategies to generate sustainable growth. We deem Co. will execute committed strategies to enhance monetisation capabilities and improve commercialisation efficiencies of core music ecosystem. Co. will maximise music subs revenue through ARPPU-prioritised segmented operations with 120m+ paying subs as of end 2024, as well as exploring various music non-subs monetisation channels leveraging music content and infrastructures. We expect clear music growth momentum along the road and believe Co. will achieve their 150m music paying users and RMB15 monthly ARPPU targets by end 2028. IOT especially in-car services and overseas will provide long-term growth imaginations. Thus, we maintain our FY2024-26E total revenue estimates unchanged while slightly trimming our FY2025-26E bottom line estimations by 1% to assume more ROI-oriented opex spending including user acquisition costs, personnel costs on music content production, R&D and AI investments.
　　4Q24 preview: in-line quarter. We model total revenue to deliver 6% YoY to RMB7.3bn, in line with consensus. We estimate music revenue will grow 14% YoY to RMB5.7bn, with music subs and music non-subs revenue logging 17% YoY and 9% YoY respectively. We forecast +2.0m quarterly music paying subs net adds to 121.0m and 2% QoQ monthly ARPPU of RMB11.0, both meet streets’ expectation. Social revenue drop -17% YoY to RMB1.5bn. We model GPM to expand 5.2ppts YoY/ 1.0ppt QoQ to 43.6%, leading to 26.7% adj. NPM.
　　Key Risks for Rating
Downside risks: 1) underperformed music paying subs; 2) key label collaboration; 3) fierce competition; 4) regulation; 5) ineffective monetisation.
　　Valuation
Maintain BUY but cut our TP to US$13.0/ HK$51.0, derived from 17.0x blended 2025E adj. PER by assuming 80% profit from music (20.0x adj. PER) and 20% from social (6.0x adj. PER) and trimmed US$0.74 (from US$0.79 previously) 2025E adj. EPADS with updated 7.4 FX rate assumptions.