7% YoY total revenue and RMB1.16 adj. diluted EPADS in 3Q24 both met streets' expectation. Inline 2.0m quarterly music net paying subs and 1% QoQ monthly ARPPU of RMB10.8 drove 20% YoY core music subs revenue. We believe Co. is able to accomplish their 3 mid-term music targets by executing high-quality balanced strategy leveraging their content ecosystem and operational expertise. We maintain our FY2024- 26E music subs revenue unchanged. Our trimmed profit forecasts mainly reflect our increased Opex assumptions (primarily S&M and R&D) despite uplifted GPM estimates. Along with account strong buyback execution and 30%+ recurring annual dividend scheme, maintain BUY with slightly lower TP of US$14.3/HK$56.1.

Key Factors for Rating

Music content ecosystem and operational expertise are key edges. We see Co. will solidify their music leading position by continuing execute their high quality growth strategy, especially smooth SVIP pack transition (10m+ paying SVIP subs as of Sep 2024) for core music subs leveraging their core music content ecosystem, diversified content formats, enriched privileges, personalised product features or IP extraction, advanced technologies and experienced mgmt. team. We maintain our estimations of around 8m/7m annual paying net adds and +9% YoY monthly ARPPU in 2025/26 respectively. We believe Co. is on track to achieve mid-term targets of 150m music paying users, RMB15 music subs monthly ARPPU and 45% music overall GPM by end-2028.

We slightly cut our 2025-26 total revenue estimates by 1% to reflect trimmed music non-subs and social revenue. Despite increased 2024-26 GPM forecasts with multiple sustainable factors, our trimmed profit estimations reflect our increased opex assumptions, including member pack promotions and R&D investments.

3Q24: inline results and strong buyback execution. Total revenue jumped 7% YoY to RMB7.0bn, in line with consensus and BOCIe. Music revenue grew 20% YoY to RMB5.5bn, with music subs and music non-subs both logging 20% YoY. 2.0m quarterly music paying net adds to 119.0m led to continued improvement of 20.7% music paying penetration. Monthly ARPPU stood at RMB10.8. Solid music ad momentum and monetisations of offline performances continued to facilitate music non-subs growth while the postponement of key offline concerts had some negative impact on music non-subs revenue in 2H24.

Social revenue dropped by -24% YoY to RMB1.5bn. Inline GPM continued to expand by 7.0ppts YoY/0.6ppt QoQ to 42.6%. Adj. diluted EPADS of RMB1.16 largely met streets' expectation. Co. repurchased US$100m shares in 3Q24 with remaining 33% US$164.5m buyback quota till Mar 2025 as of Sep 2024.

Key Risks for Rating

Downside risks: 1) underperformed music paying subs; 2) key label collaboration; 3) fierce competition; 4) regulation; 5) ineffective monetisation.

Valuation

Maintain BUY but slightly cut our TP to US$14.3/HK$56.1, derived from unchanged 18.0x blended 2025E adj. PER by assuming 80% profit from music (20.0x adj. PER) and 20% from social (6.0x adj. PER) and trimmed US$0.79 (from US$0.82 previously) 2025E adj. EPADS.