Broker Name: UOB Kay Hian
Date of Report: 18 March 2026

Excerpt from UOB Kay Hian report.

Report Summary
• Tencent Music Entertainment (TME) delivered strong 4Q25 results, with revenue up 15.9% year-on-year and non-GAAP net profit up 7.6%, both beating expectations. Gross margin improved to 45% due to robust subscriber services and advertising growth, offsetting weakness in social entertainment revenue.
• The company is investing in AI initiatives for music creation, engagement, and content expansion, aiming for long-term growth despite rising competition from Bytedance’s Soda Music and potential pressure on SVIP subscriptions in 2026.
• Management maintains a long-term goal of 150 million subscribers with ARPPU of RMB15, targeting innovative growth drivers such as fan-economy, artist merchandising, and live events. Valuation has de-rated due to market concerns, but the stock remains a Buy with a lower target price of HK\$72.00 for around 26% upside.
• Key risks include increased competition, possible margin pressure due to AI and strategic investments, and slower net add growth. TME differentiates itself with broader content and monetization focus compared to competitors.
• Forward PE is now around 15x, and the company shows robust financials with net cash on its balance sheet, no debt, and a consistent focus on high-margin music services and advertising segments.

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