We model 2Q25 12% YoY topline contributed by solid 19% YoY music, both meeting consensus. +1.5m quarterly music paying subs and +2% QoQ monthly ARPPU of RMB11.7 support 16% YoY music subs. Forecasted 44.8% GPM and 28.9% adj. NPM both slightly beat consensus. We deem Co. further enriches its monetisation channels and deepens commercialised extractions of segmented users with more refined operations to improve the sense of identity given its solidified edges on content, privileges, partners and operations. Along with differentiated strategies taken by key peers amid stable domestic music industry, high financial forecasts visibility with sustainable growth drivers, well-executed shareholder return policies and healthy cash positions, maintain BUY and further lift our TP to US$23.9/ HK$93.8.
　　Key Factors for Rating
Enriched and deepened monetisations. We see Co. continues to enrich monetisation channels and deepen commercialised extractions of segmented users especially cohort ones given its i) comprehensive and diverse content supply; ii) various membership packs; iii) enriched and strengthened non- content privileges; iv) constant product innovations and user interface upgrades; and v) strong operational expertise amidst stable domestic online music industry with solid user demands. we see Co. primarily scales back its promotions and enriches its non-content privileges for various membership packs across apps to firmly execute its high quality music strategies compared to what we summarised in Oct 2024. We largely keep our FY2025-27 total revenue and earnings estimates unchanged.
　　2Q25 preview: strong music momentum; slight profit beat. We model total revenue to jump 12% YoY to RMB8.0bn, in line with consensus. We estimate music revenue will grow at accelerated 19% YoY to RMB6.4bn, with music subs and music non-subs revenue logging 16% YoY and 25% YoY respectively. We forecast +1.5m quarterly music paying subs net adds to 124.4m and 2% QoQ monthly ARPPU of RMB11.7. Social revenue drop by -11% YoY to RMB1.5bn. We model GPM to expand 2.7ppts YoY/ 0.7ppt QoQ to 44.8%, leading to 28.9% adj. NPM, both slightly above consensus.
　　Key Risks for Rating
　　Downside risks: 1) underperformed music paying subs; 2) key label collaboration; 3) fierce competition; 4) regulation; 5) ineffective monetization.
　　Valuation
　　Maintain BUY and raise TP to US$23.9/ HK$93.8, derived from 28.0x blended 2025E adj. PER by assuming 80% profit from music (32.0x adj. PER) and 20% from social (10.0x adj. PER) and unchanged US$0.86 2025E adj. EPADS.