Tencent Music SW (01698. HK) announced its second quarter results and its stock price rose first. As of press time, it rose 5.38% to HKD 53.85.
Note: Trend of Tencent Music SW
On the news front, Tencent Music will announce its second quarter performance after the Hong Kong stock market closes today, and the market is full of expectations for its performance.
Firstly, Morgan Stanley recently released a research report stating that the likelihood of Tencent Music's US stock price rising in the next 60 days exceeds 80%. They believe that although the stock price has been affected by recent market adjustments, Tencent Music's short-term valuation has become more attractive as a result.
Da Mo further pointed out that Tencent Music's valuation is equivalent to a predicted P/E ratio of less than 15 times in 2025, and it is expected that the adjusted net profit will reach 9.5 billion yuan, a year-on-year increase of over 25%. Driven by the growth of subscription users, advertising revenue, other music revenue, and improved profit margins, the company's stock price still has significant upward potential. In addition, the market generally expects Tencent Music's upcoming second quarter performance and third quarter guidance to be slightly higher than expected.
Goldman Sachs reports a net increase of approximately 3.7 million paying users in the second quarter
Meanwhile, Goldman Sachs recently released its research report on Tencent Music, giving it a "buy" rating and setting a target price of HKD 62.3. Despite the impact of macro concerns on the Chinese market, the company's stock price has remained strong since its performance announcement on May 10th. Tencent Music's P/E ratio is close to 20 times, which is a premium to the Internet sector. In the future, investors need to pay attention to the risks of slowing down music subscriptions and their reasonable valuation levels.
According to industry research, Tencent Music's subscription revenue increased by 30% in the second quarter and until mid July. Considering the high willingness and retention rate of users to pay, Goldman Sachs expects a net increase of approximately 3.7 million paying users in the quarter.
In addition, the Goldman Sachs report also pointed out that there is further room for Tencent Music's music profit margin to increase, and it is expected that the gross profit margin will reach over 43% by the end of the year. Given that Tencent Music's music business revenue has grown by over 20% over the years, a 20 times P/E ratio is reasonable. Compared to Spotify's projected P/E ratio of 40 times in 2025, Tencent Music's valuation is more attractive.