9% YoY topline and RMB2.1bn (up 25% YoY) adj. net profit in 1Q25 exceeds consensus by 1% and 3% respectively. 16% YoY core music revenue meets streets’ expectation. We deem Co. has strong financial visibility along the road on solid music growth trajectory driven by ARPPU-prioritised subs and diversified non-subs monetisation channels given its enriched contents, expanded privileges and solidified operational expertise. Along with its committed shareholder return executions, healthy cash position and potential M&A with profound synergies, we maintain BUY and TP of US$16.5/HK$64.8 amid dynamic global systematic uncertainties.
　　Key Factors for Rating
　　ARPPU-prioritised subs and accelerations of diversified supplementary non-subs monetisations facilitate sustainable music momentum. We deem Co. keeps prioritising ARPPU over paying net adds on core music subs to pursue high quality sustainable growth with its core competitive edges on contents, services and operational expertise. We see more disciplined promotion initiatives will be N-T key music ARPPU driver and SVIPs start to contribute more in coming quarters with the inclusions of various contents and privileges. Simultaneously, we see Co. enhances and expands its diversified music non- subs monetisation capabilities and channels such as ad, artist merchandises and offline events. Thus, we keep our FY2025-27 music subs revenue forecasts unchanged by trimming our paying net adds to 6.0m/5.9m/5.6m while uplifting our ARPPU estimates by 1%/2%/3% in 2025/26/27 respectively. We also raise our FY2025-27 music non-subs revenue forecasts by 1%. We largely keep our FY2025-27 GPM forecasts unchanged and our raised adj. EPADS mainly reflects our trimmed opex assumptions primarily from G&A.
　　1Q25: Solid music; profit beat. Total revenue grew 9% YoY to RMB7.4bn, 1% above consensus. Music revenue grew 16% YoY to RMB5.8bn, with music subs and music non-subs logging 17% YoY and 14% YoY respectively. 1.9m quarterly music paying net adds to 122.9m led to continued improvement of 22.1% paying penetration. Music monthly ARPU was RMB11.4, ahead of BOCIe driven by SVIPs and disciplined promotions. Solid music ad and monetisations of artist merchandises and live performances continued to facilitate music non- subs growth. Social revenue dropped by -12% YoY. In-line GPM continued to expand YoY and QoQ to 44.1%. Adj. net profit grew 25% YoY to RMB2.1bn, 3% ahead of consensus. Co. has started to repurchase shares since Apr 2025 under its newly announced 2-year US$1bn buyback scheme till March 2027.
　　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 and our TP of US$16.5/HK$64.8, derived from 20.0x blended 2025E adj. PER by assuming 80% profit from music (23.0x adj. PER) and 20% from social (7.0x adj. PER) and uplifted 2025E adj. EPADS to US$0.83 (from US$0.79 previously).