TME (TME US) Company Update Summary
Core Content Overview
This document provides an equity research update on TME (TME US) for the period ending December 31, 2021, and includes financial forecasts, performance analysis, and investment ratings. The report outlines the challenges faced by TME in the first quarter of 2022 and beyond, primarily due to the ongoing impact of the epidemic, regulatory pressures, and weak consumer sentiment.
Main Financial Highlights
1Q22E Forecast
- Revenue: RMB6.5bn (-17% YoY)
- Adj. Net Profit: RMB902mn (-27% YoY)
- Online Music Revenue: RMB2.7bn (-3% YoY)
- Subscription Revenue: +18% YoY (4mn net adds)
- ARPPU: RMB8.3 (vs. RMB8.5 in 4Q21)
- Social Entertainment Revenue: RMB3.785bn (-25% YoY)
- Subscription Revenue: +18% YoY
- Non-Subscription Revenue: -36% YoY
FY22E Forecast
- Revenue: RMB27.943bn (-11% YoY)
- Adj. Net Profit: RMB3.8bn
- Adj. Net Margin: 13.6% (vs. 13.9% in FY21)
- Gross Margin: 29.0% (vs. 29.6% in FY21)
- Operating Margin: 12.2% (vs. 10.9% in FY21)
Key Financial Trends
- Revenue Growth: Slowed significantly from FY20A to FY21A, with a YoY growth of 14.6% to 7.2%, respectively.
- Adj. Net Profit Growth: Decreased from FY20A to FY21A, with a YoY growth of 1.0% to -13%, and expected to stabilize in FY22E.
- P/E Ratio: 14.2x FY22E P/E (vs. previous TP of US$5.5)
- Target Price: US$5.0 (with a 10.0% upside from current price of US$4.56)
- Market Capitalization: US$7,633mn
- Average 3-Month Turnover: US$95.40mn
- 52-Week High/Low: US$19.84/US$2.95
Revenue Breakdown (1Q22E)
| Segment |
Revenue (RMB mn) |
YoY Growth (%) |
QoQ Growth (%) |
| Total Revenue |
6,456 |
-17.5 |
-15.1 |
| Online Music Service |
2,670 |
-3.0 |
-7.0 |
| Subscription |
1,997 |
+18.0 |
+2.0 |
| Others |
673 |
-36.0 |
-28.0 |
| Social Entertainment |
3,785 |
-25.0 |
-20.0 |
Earnings Summary (FY20A to FY24E)
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Revenue (RMB mn) |
29,153 |
31,244 |
27,943 |
29,206 |
30,619 |
| Adj. Net Profit (RMB mn) |
4,971 |
4,332 |
3,800 |
3,850 |
4,459 |
| Adj. EPS (RMB) |
3.0 |
2.6 |
2.3 |
2.3 |
2.7 |
Key Ratios
| Metric |
FY20A |
FY21A |
FY22E |
FY23E |
FY24E |
| Online Music Service |
32.1% |
36.7% |
45.7% |
49.0% |
52.3% |
| Subscription |
19.1% |
23.5% |
31.3% |
33.7% |
36.2% |
| Social Entertainment |
67.9% |
63.3% |
54.3% |
51.0% |
47.7% |
| ROE (%) |
9.4 |
7.4 |
6.1 |
5.9 |
6.3 |
| ROA (%) |
7.3 |
5.8 |
4.9 |
4.7 |
5.1 |
Investment Rating
- CMBIGM Rating: HOLD
- Target Price: US$5.0
- Previous Target Price: US$5.5
- Up/Downside: +10.0%
Key Challenges and Outlook
- 1Q22E: Expected to be in-line with previous quarters, but with revenue and adj. net profit declining due to weak ads and social entertainment.
- 2Q22E & FY22E Outlook: Remain challenging, with a backend-loaded revenue pattern.
- Subs ARRPU: Declined in 1Q22E but is expected to stabilize in 2Q22E.
- Ads Revenue: Under pressure due to high base in 1H21 and soft macroeconomic conditions, but may recover in 2H22E with the launch of incentive ads.
- Social Entertainment: Continuously decreasing due to epidemic resurgence, competition, and regulation.
- Margin: Intact due to cost savings and effective opex control.
Shareholding and Performance
| Shareholder |
Ownership (%) |
| Bailie Gifford |
6.17% |
| Canada Pension Plan |
4.25% |
| Blackrock |
3.36% |
Share Performance (12-Month)
| Period |
Absolute (%) |
Relative (%) |
| 1-Month |
-10.9 |
-7.1 |
| 3-Month |
-34.5 |
-28.8 |
| 6-Month |
-41.6 |
-34.2 |
Cash Flow and Balance Sheet Highlights
Cash Flow Summary (FY20A to FY24E)
- Operating CF: Expected to increase to RMB6,374mn in FY24E
- Investing CF: Negative in FY20A to FY24E
- Net Change in Cash: Positive in FY22E to FY24E
Balance Sheet Highlights
- Total Equity: Expected to increase from RMB52,731mn to RMB70,307mn
- Shareholders' Equity: RMB69,821mn in FY24E
- Cash (End of Year): RMB20,576mn in FY24E
Conclusion
TME is facing significant challenges in the first quarter of 2022, primarily due to the impact of the epidemic and regulatory headwinds on social entertainment. Despite this, subscription revenue remains resilient. The company's revenue and profit are expected to decline in FY22E, with the financial performance showing signs of stabilization in the latter part of the year. The investment rating remains HOLD, with a reduced target price of US$5.0. The company is maintaining its financial margins and is expected to see an increase in equity and cash flow over the forecast period.
