Zhongjin: Continue to pay attention to competition and the impact of AI, and patiently wait for the valuation recovery of the online music sector.

Zhongjin published a research report stating that since the second half of 2025, the valuation of the music sector has undergone a deep adjustment, with the main concerns in the market focused on: the long-term growth space and pressure on the growth rate of subscription business, competition impact brought by Douyin's ecosystem and AI cover music, and the impact of AIGC on original content and platform commercial value. Recently, Tencent Music and NetEase Music have released their 2025 performance. The bank believes that the long-term growth logic of the music sector remains unchanged, diversified revenue has potential, and the industry has valuation recovery potential. The bank recommends TME-SW (01698)/NetEase Music (09866). Key points from Zhongjin: Revisiting competition: Focus on the growth trends of Douyin/Tomato Music and the impact of traffic entrances According to QuestMobile, the MAU of Douyin/Tomato Music and Douyin/Yuanbao has continued to rise recently. The bank believes that Douyin's AI cover songs expansion has some appeal to light music users; Tencent Music and NetEase Music still have advantages in music ecology, with high core paying user stickiness, but the operational strategies of competitors targeting light users may have overflow effects on their existing business ecosystems. Pay platforms need to balance the needs of different user profiles, and AI technology and industry competition are pushing pay platforms to further improve their operational capabilities. The differentiation of the impact of AI technology at home and abroad, with dual tracks of governance and innovation in the domestic platform The bank believes that the core contradiction in the overseas music industry in recent years lies in the conflict of interests between copyright holders and AI technology companies, which has gradually moved from confrontation to coexistence. The domestic music industry ecosystem is more integrated, Tencent Music and NetEase Music still have the potential to play a leading role in the AI era, building governance systems to explore new regulations, etc.; Douyin's AIGC capabilities are highly compatible with platform distribution models, and the closed loop of technology foundation + traffic entrance + content distribution may have potential, but its long-term profitability and compliance governance capabilities need to be verified. It is recommended to rationally analyze the opportunities and challenges brought by AI music. Industry valuation recovery driven judgment The bank suggests focusing on catalysts: 1) If the growth rate of Douyin/Tomato MAU stabilizes or slows down, easing concerns about the impact of the free model on the market; 2) Deepening of copyright governance to solidify industry commercial order; 3) Standardization of AI technology implementation to open up efficiency and monetization space; 4) Stabilization of pessimistic expectations at home and abroad, driving the recovery of sector valuation, etc. Risk factors Tighter regulatory policies, fluctuations in copyright costs, changes in user demand and competition divergence, technology iterations, and experience adaptation falling short of expectations, changes in the macro-political and economic landscape.