Original title:Citic SecuritiesTencent music streaming strongly maintains "hold" rating source: Citic securities
Institution: Citic Securities
Rating: hold
The company released its unaudited three-quarter report in 2019, showing a strong overall business performance, with 2019Q3 revenue year-on-year + 31% dome Nonmurf IFRS net profit + 8% year-on-year. However, considering that competition such as short videos may increase competition or put pressure on future social entertainment revenue costs to a certain extent, we slightly downgrade our future profit forecast and maintain our "hold" rating.
Overview: 2019Q3's revenue year-on-year + 31% non-performance IFRS net profit + 8% year-on-year. 12019Q3 achieved revenue of 6.51 billion yuan, + 31% year-on-year; of this total, online music service revenue was 1.85 billion yuan, + 26% year-on-year; and social entertainment service revenue was 4.66 billion yuan, + 33% year-on-year. The net profit of 22019Q3 is 1.02 billion yuan, which is 1.23 billion yuan compared with the same period of last year and + 8% compared with the same period last year.
Online music: high growth of subscribers driven by streaming media paywall. The number of monthly active users of 12019Q3 music is 661 million (year-on-year + 1%, month-on-month + 1%), and the overall stability is that the payment rate for streaming media-driven 2019Q3 online music service has increased to 5.4%. The number of music subscribers has reached 35.4 million (year-on-year + 42%, month-on-month + 14%). Online music service monthly ARPPU8.9 yuan (year-on-year + 5%, month-on-month + 3%), corresponding to 2019Q3 from music subscription service income of 942 million yuan, year-on-year + 48% 2 other music income 900 million yuan, + 9% compared with the same period last year, in which digital album revenue performed better thanks to factors such as Jay Chou's album sales.
"Social entertainment: the overall user growth is flat, the conversion of paying users is improved, and the functions such as short video are improved. The number of monthly active users of 2019Q3 social entertainment is 242 million (year-on-year + 8%, month-on-month + 1%). The slowdown is to some extent affected by competition in industries such as short videos, but with the strengthening of paid diversion, the number of entertainment-paid households is 12.2 million (year-on-year + 23%, month-on-month + 10%), social entertainment service payment rate 4.6%, monthly ARPPU127.3 yuan (year-on-year + 7%, month-on-month-2%) This is mainly due to the increase in the number of singing paying users and the lower ARPPU value, which lowers the overall level, corresponding to 2019Q3 social entertainment income of 4.66 billion yuan (year-on-year + 33%, month-on-month + 7%). Despite the competition, the company has added and improved short video, user interaction, social and other functions to enhance user participation.
Cost side: the cost of 2019Q3 is stable compared to the whole, and the investment is expected to follow or increase in the context of competition. 1 Company 2019Q3 operating cost 4.3 billion yuan, year-on-year + 43% 6pcts 2019Q3 operating cost rate 66% (year-on-year + 6pcts, month-on-month-1pct), due to the increase in content cost and sharing cost. 2 in terms of expenses, the 2019Q3 sales expense rate is 8%, year-on-year-0.8pct, and the management and general administrative expense rate is 11%, which is the same as the same period last year. 3 considering the strengthening of competition in the current short video and other industries, we expect the company to follow up or increase the cost investment.
The comprehensive competitiveness of the company in the field of music and entertainment is still significant, and actively respond to the competition in the industry, we are optimistic about the long-term value of the company. 1TME has significant network effect and scale advantages, and has a solid position in the music field: in terms of users, TME has become the music portal with the widest audience and the highest awareness. In terms of content, TME music library has the largest number of domestic copyright tracks, the most complete head singer, the most perfect theme, more than 20 million music library, and strives to build multiple content forms and community ecology. "quantity" and "quality" take the lead in an all-round way, the largest number of users and the most complete content to build a closed loop, network effect and scale advantage is absolutely leading. 2 relying on social and copyright advantages, social entertainment business actively responds to industry competition: under the background of the integration of the entertainment live broadcast industry and the continuous competition of short video platforms, TME relies on Tencent's social ecological advantages and rich copyright advantages to focus on music, continuously improve product features (such as improving the richness of short video content, upgrading singing features, etc.), enhance user experience participation and help singer anchors achieve success. We believe that although the current stage of TME social entertainment business faces certain user and cost competition, it is still expected to continue to reflect its competitiveness and excess growth.
Risk factors: entertainment live broadcast business risk affected by macroeconomic and increased competition; subscription service payment rate and ARPPU value increase lower than expected risk; copyright cost and sharing cost increase risk; regulatory risk.
Profit forecast, valuation and investment advice: TME, as the absolutely leading comprehensive music entertainment social platform in China, has obvious network effect and scale advantages, and its long-term competitiveness is stable. Considering the potential pressure on the cost side of social entertainment business revenue brought about by the follow-up competition for short video platforms, we slightly lower the company's revenue forecast for 2019-2021 to 25.2 billion / 32.4 billion / 41 billion yuan (the previous value is 25.6 billion / 33.1 billion / 41.5 billion yuan). The net profit is forecast to be 3.8 billion / 4.6 billion / 6.3 billion yuan (the previous value is 3.6 billion / 5 billion / 6.9 billion yuan) The adjusted return net profit forecast is 4.7 billion / 5.8 billion / 7.7 billion yuan (the previous value is 4.3 billion / 6 billion / 8.1 billion yuan) (due to the statistical caliber adjustment, the profit forecast has been raised in 2019), the current stock price corresponds to PE40/33/24 times and PE (adjusted) times on 32-26-20. While we are optimistic about the long-term value of the company, we also believe that the current stock price corresponds to the valuation implied growth expectation is more sufficient, to maintain the "hold" rating.