TME(TME.US)：BETTER-THAN-FEARED SOCIAL WITH STABLE MARGIN

　　We expect TME’s 2Q22E results would be better-than-feared, with rev/adj. net profit to be RMB6.7bn/906mn (-17%/-22% YoY) in 2Q22E. Online music would slightly decline 5% YoY, in which subscription is defensive (+18% YoY), attributable to ~3mn net adds and slightly higher ARPPU of RMB8.4 (vs. RMB8.3 in 1Q22), while ads rev is under pressure due to soft macro, offsetting by resilient e- commerce ads during 618 festival. Social would be better than feared, forecasting -24% YoY in 2Q22E, thanks to manageable impact from regulations. We slightly raised its earnings forecast by 2-5% in FY22-24E, to reflect the better-than-feared social and effective opex control. Maintain HOLD with higher TP of US$5.5 (17.5x FY22E P/E).
　　2Q22E results on track. We forecast 2Q22E topline -17% YoY with ads and social headwinds offsetting by solid subs (+3mn net adds). Music/social -5%/ -24% YoY in 2Q22E, with subs/non-subs +18%/-40% YoY. We expect adj. net profit to reach RMB904mn (-22% YoY), with stable adj. NPM at 14% (mainly on high-than-expected GPM and opex control).
　　Challenges yet over, while social better-than-feared in 2Q22E. We remain positive on subs momentum (+18.5% YoY in FY22E), driven by ARPPU recovery from 1Q22 while net adds showed moderate growth. Social entertainment would be better than feared, forecasting -24% YoY in 2Q22E, attributable to manageable impact from live streaming regulations in May, but influences incurred by soft macro, fiercer competition and regulatory headwinds would still linger into 2H22E. The visibility of ads recovery in 2H22E is unclear, due to marco uncertainty, although the long-term growth will be driven by incentive ads and online concerts.
　　Stable margin thanks to effective opex control. We expect 2Q22E GPM to be stable QoQ at 28% (vs. prior 26%), for better-than-feared social entertainment. FY22E GPM would slightly dilute to 28% (-2ppt YoY) due to lower rev mix from social entertainment and continuous investments in LFA offsetting by resilient subs, while adj. NPM was estimated at 13.1%, attributable to effective opex control.
　　Maintain HOLD. We raised FY22-24E earnings forecast by 2-5%, to reflect better-than-feared social and effective opex control. Maintain HOLD with higher TP of US$5.5 (17.5x FY22E P/E).
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。