24Q3's revenue was 7.02 billion yuan (yoy +6.8%, qoq -2.0%). The company's gross profit margin of 42.6% (yoy+7.0pp, qoq+0.6pp) is mainly due to strong growth in revenue from music subscriptions and advertising services, as well as a gradual increase in original content. Q3 sales expenses were 0.22 billion yuan (yoy +0%, qoq +4.8%), which is basically the same as the same period last year. The company continues to manage promotion expenses by focusing on return on investment.

Q3 General administrative expenses were 0.998 billion yuan (yoy -4.9%, qoq +6.4%). The main reason for the year-on-year decline in expenses was reduced personnel expenses. Q3 IFRS net profit of 1.58 billion yuan (yoy +35.5%, qoq -5.89%); Q3 non-IFRS net profit of 1.81 billion yuan (yoy +28.8%, qoq -3.15%).

24Q3 online music service revenue: 5.48 billion yuan (yoy +20.4%, qoq +1.0%), mainly due to high-quality content, attractive member benefits, optimized user operations, and effective promotion measures. We expect Q4 revenue to continue to grow, reaching 5.7 billion yuan (yoy +14.4%, qoq +4.8%), and we expect online music revenue for the full year of '24 to be 21.7 billion yuan (yoy +25%). Q3MAU 0.576 billion (yoy -3.0%, qoq +0.88%); MPU 0.119 billion (yoy +15.5%, qoq +1.71%), of which SVIP exceeds 10 million; ARPPU 10.8 yuan/month (yoy +4.6%, qoq +1.4%). We expect the ARPPU of Q4 companies will continue to increase as the penetration rate of ARPPU membership packages with higher SVIP increases, reaching 11.02 yuan/month, and MPU reaching 0.121 billion yuan.

24Q3 social entertainment service revenue: 1.54 billion yuan (yoy -23.9%, qoq -11.6%). Revenue declined year-over-year and month-on-month, mainly due to adjustments to live streaming interactive features and strengthened compliance procedures, as well as competition from other platforms. Q3 MAU 0.09 billion (yoy -30.2%, qoq -3.23%); MPU 0.0079 billion (yoy +1.3%, qoq +0%). We expect Q4 revenue to be 1.5 billion yuan (yoy -18%, qoq +0.02%). The year-on-year decline is mainly due to continued tightening of corporate compliance combined with macroeconomic factors.

With the increase in online music paying users and ARPPU, the company's share of online music revenue in the overall structure continues to increase, and the profit margin side is expected to continue to be optimized. We expect net profit to be 6.4/7.9/9.5 billion yuan for 24-26 (the original forecast value for 24-26 was 6.7/8.2/10.2 billion yuan, adjusted for profit forecasts due to lower gross profit margin, interest income, etc.). Referring to comparable companies, P/E was given 28 times in 24 years, and the target price was 56.37 Hong Kong dollars (52.17 yuan), maintaining the “buy” rating.

Risk warning

Risk of pattern reshuffle brought about by the launch of the Douyin music platform; risk of live streaming supervision; increased risk of competition within the live streaming industry