+18% YoY topline and RMB2.6b(+37% YoY) adj. net profit i2Q25 beat consensus by 6% and 13% respectively. For music subs, 1.5m quarterly paying net adds and RMB11.7 monthly ARPPU met BOCIe. 47% YoY music non-subs significantly beat BOCIe. Prioritising ARPPU- drivemusic subs as sustainable growth driver, Co. accelerates its endeavors to initiate product innovations, enrich music-related service offerings and deepemonetisations oits solidified music edges.
　　MaintaiBUY and raise our TP to US$27.0/ HK$106.0.
　　Key Factors for Rating
　　SVIP as sustainable ARPPU-facilitator; enriched services with depend monetisations. We expect Co. to continue treating ARPPU-prioritised music subs as core sustainable high quality growth driver, itandem with its endeavor to further enrich diversified music related services offerings and monetisatiomodels leveraging core content, partner and operational expertise edges. We deem SVIPs as core ARPPU facilitators with improved paying penetratiodriveby sound quality, various artist centric privileges, enriched content, product innovations and expanded scenarios. Ad, artist merchandises, offline performances, digital album and new monetisatiochannels continue to support music non-subs healthy growth momentum. Thus, we raise our FY2025-27 total revenue estimates by 1-2% to mainly reflect our uplifted music non-subs revenue forecasts. Our decreased FY2025-27 GPM estimates are mainly affected by revenue mix shift. We largely keep our FY2025-27 opex forecasts unchanged to assume Co.’s committed while disciplined investments.
2Q beat oimpressive music non-subs. Total revenue grew 18% YoY to historical peak at RMB8.4bn, 6% beat consensus. Music revenue grew at accelerated 26% YoY to RMB6.9bn, with music subs and music non-subs logging 17% YoY and 47% YoY respectively. 1.5m quarterly music paying net adds to 124.4m met streets’ expectation. Music monthly ARPU was RMB11.7, iline with BOCIe mainly driveby improved 12% SVIPs adoptio(15m+ SVIPs subs).
　　Strong music ad and robust growth of artist merchandises and live performances facilitated surprising music non-subs. Social revenue dropped by -9% YoY. In- line GPM continued to expand YoY and QoQ to 44.4%. Adj. net profit grew 37% YoY to RMB2.6bn, 13% ahead of consensus.
　　Key Risks for Rating
　　Downside risks: 1) underperformed music paying subs; 2) key label collaboration; 3) fierce competition; 4) regulation; 5) ineffective monetisation;
　　Valuation
　　MaintaiBUY and raise TP to US$27.0/ HK$106.0, derived from 30.0x blended 2025E adj. PER by assuming 80% profit from music (35.0x adj. PER) and 20% from social (10.0x adj. PER) and slightly uplifted US$0.89 2025E adj. EPADS.