Jinwu Financial News | According to BOC International Development Research Report, Tencent Music (01698)'s revenue for the first quarter exceeded market expectations by 3%. The gross margin was 41%, and the month-on-month optimization was 8/3 percentage points. Adjusted net profit increased by 24% year on year, higher than the bank's forecast of 13%, corresponding to the adjusted net interest rate of 27%, an increase of 6/3 percentage points over the same period last year. Strong growth in subscriptions and advertising led to online music revenue exceeding expectations by 3% in the first quarter. Online music revenue was 5 billion yuan, an increase of 43% over the previous year. The net month-on-month increase of 6.8 million music members reached a record high, corresponding to a payment rate of 19.6%.
Looking ahead, the bank expects +30% music subscriptions in the second quarter: a net increase of 3.7 million members, and a slight month-on-month improvement in ARPPU. The bank expects non-member music revenue to increase 21% to 1.6 billion yuan, taking into account incentive advertising and artist peripheral sales.
The bank raised the 2024/25 adjusted net profit forecast of 7%/7%, switched to SOTP valuation, and adjusted the valuation to 2025, increasing the target price to HK$17/HK$65 (previously HK$13/HK$50). We continue to be optimistic about the growth potential of long-term music membership, and the introduction of more innovative advertising models to expand advertising monetization potential, and the trend of profitability release will not change. Shareholder feedback continued, and the annual dividend policy was announced (dividend ratio of about 26%, dividend rate of 1%). Keep buying.