CICC International: raise target price of TME-SW (01698) to HKD 111.2, expected bright prospects for non-subscription services.

CICC International released a research report stating that due to a more optimistic view on TME-SW (01698) non-subscription business, the group's profit forecast for 2025-2027 has been raised by 5%, 7%, and 6%, respectively. The valuation benchmark year has been updated to 2026, with the P/E ratio multiple increased from the previous 24 times to 28 times, thereby raising the target price by 47%, from 75.66 Hong Kong dollars to 111.2 Hong Kong dollars. The bank believes that the company's unique business model and more diversified sources of revenue, its profit growth prospects are sustainable and transparency is improved, so it maintains an "outperform" rating. The report stated that Tencent Music's performance in the second quarter of this year exceeded expectations, and the group's strategy driven by ARPPU is effective, with its vibrant music content ecosystem and fan economy, non-subscription businesses have the potential to become DRIVES of multi-year growth. Looking ahead to the third quarter of this year, the bank expects the group's revenue to increase by 17% year-on-year to 8.21 billion yuan, and expects its music subscription to increase by a net of 1.3 million in the third quarter, totaling 125.7 million, with ARPPU expected to increase by 10% to 11.90 yuan. It is also expected that the adjusted net profit in the third quarter will increase by 32% year-on-year to 2.39 billion yuan.