24Q1's revenue was 6.77 billion (yoy- 3.4%, qoq -1.8%). For 24Q2, we expect revenue of 7.38 billion (yoy +1.3%, qoq +9.1%). 24Q1's gross profit margin of 40.9% (yoy+7.9pp, qoq+2.6pp) is mainly due to strong growth in revenue from music subscriptions and advertising services, as well as a gradual increase in original content.

Q1 sales expenses were 190 million yuan (yoy -12%, qoq -26.7%), a year-on-year decrease in social entertainment promotion expenses, but this was partly offset by an increase in content promotion expenses. Q1 General administrative expenses amounted to RMB 950 million (yoy -6.7%, qoq -6.1%), mainly due to a reduction in personnel expenses. Q1 net profit to mother was 1.4 billion yuan (yoy +23.9%, qoq +8.9%); Q1 adjusted net profit to mother was 1.7 billion yuan (yoy +20.8%, qoq +8.2%).

24Q1 online music service: 5.01 billion (yoy +43.0%, qoq -0.3%), mainly due to an increase in users' willingness to pay for more attractive membership benefits, interactive product features, and rich music content, thereby increasing membership revenue, and advertisers are more fond of the company's diverse product portfolio and innovative advertising formats, increasing advertising revenue. We expect Q2 revenue of 5.67 billion (yoy +33.5%, qoq +13.3%), and we expect 24-year revenue of 22.5 billion (yoy +30%). Q1MAU 580 million (yoy -2.4%, qoq +0.4%); MPU of 110 million (yoy +20.2%, qoq +6.4%), a record high of new members; ARPPU 10.6 yuan/month (yoy +15.8%, qoq -0.5%). We expect Q2's ARPPU to continue to increase, adding 3.5 million new paid music members.

24 For the full year, we expect membership revenue to reach 15.3 billion, an increase of 26.7% year over year.

24Q1 social entertainment services: 1.76 billion (yoy -49.7%, qoq -5.9%). This is mainly due to adjustments to some live streaming interactive features and implementation of stricter compliance procedures, as well as competition from other platforms. We expect Q2 revenue to be $1.71 billion (yoy -43.7%, qoq -2.8%), and the 23H1 social entertainment business remains a high base year over year. Q1MAU 100 million (yoy -29%, qoq -6.7%); MPU 0.1 billion (yoy +12.7%, qoq +0%); ARPPU 73.4 yuan/month (yoy -55.4%, qoq -5.9%).

With the increase in online music payments and ARPU, the share of the company's music membership revenue in the overall structure continues to increase, and the profit margin side is expected to continue to be optimized. We expect the company's net profit for 24-26 to be $66/800/9.4 billion yuan, respectively (the original forecast for 24-25 was $57/69 billion, due to an increase in the number of paying member users and an increase in profit margin). Referring to comparable companies, P/E was given 24 times 29 times, and the target price was 61.53 Hong Kong dollars (55.97 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