China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

RRG Global Macro - Beijing Not Going to Change in 90 Days - On a Collision Course with Washington

MD, Blue Lotus Research Institute

Gu Jun, CFA

Equity Bottom-Up

<p>Facing a high-level user scale, we expect Tencent Music's future user scale to encounter growth bottlenecks. According to our estimation, the total revenue growth rate of Tencent Music will gradually slow down in the following years, and the proportion of online music service revenue will continue to decline, while the proportion of social entertainment service revenue will gradually increase and become the major driving factor for Tencent Music growth. Among them, the increase of the ARPU of social entertainment services and paying ratio of online music services are the key indicators of the future revenue growth; the paying ratio of social entertainment service still has a certain growth space; The ARPU value of online music service is hard to improve because it is limited by the low level of the whole domestic online music industry. Based on the above analysis, our initial valuation of Tencent Music is about USD 28.3 bn.</p>

Facing a high-level user scale, we expect Tencent Music's future user scale to encounter growth bottlenecks. According to our estimation, the total revenue growth rate of Tencent Music will gradually slow down in the following years, and the proportion of online music service revenue will continue to decline, while the proportion of social entertainment service revenue will gradually increase and become the major driving factor for Tencent Music growth. Among them, the increase of the ARPU of social entertainment services and paying ratio of online music services are the key indicators of the future revenue growth; the paying ratio of social entertainment service still has a certain growth space; The ARPU value of online music service is hard to improve because it is limited by the low level of the whole domestic online music industry. Based on the above analysis, our initial valuation of Tencent Music is about USD 28.3 bn.

Tencent Music（TME）: We Think It Is Worth USD 28.3 Bn --(1)