According to the report released by Goldman Sachs, although the Chinese market is generally weak due to macro concerns, Tencent Music-SW (01698) has remained strong since the financial report was announced on May10. The report gives a 'buy' rating with a target price of HKD 62.3.

The report believes that Tencent Music's stock price is strong, reflecting the group's tendency to charge and increase the average revenue per user (ARPU), which makes the music business more certain. More importantly, Tencent Music's performance is not based on a significant increase in market share. The second-ranked Netease Cloud Music has also achieved steady growth, indicating that the subscription/advertising revenue of the music industry is expanding this year.

The report pointed out that Tencent Music's price-to-earnings ratio (PE) has approached 20 times, and there is a premium over the internet sector. In the future, attention needs to be paid to the risk of slowing music subscriptions and its reasonable valuation. The report quoted industry surveys as saying that Tencent Music's second quarter subscription revenue growth reached 30% by mid-July, and considering the high willingness of users to pay and retention rate, it is believed that the quarterly paid users will increase by about 3.7 million.

The report also believes that there is further room for the music profit margin to increase, and predicts that the gross margin will reach over 43% by the end of the year. The group's music business revenue has achieved over 20% growth for many years, so it believes that a PE of 20 times is reasonable, compared to Spotify's forecast PE of 40 times in 2025.