CICC released a research report stating that, considering Tencent Music-SW's (01698) new business growth in 2025 and potential investments in 2026, it forecasts Non-IFRS net profits of RMB 9.63 billion and RMB 10.75 billion for 2025 and 2026, respectively. Currently, the U.S. stock trades at 24x and 21x 2025/2026 P/E, while the Hong Kong stock trades at 25x and 22x P/E. The firm maintains an "Outperform Industry" rating. Based on 2026 gross margin trends, CICC sets target prices of $26.0 for the U.S. stock and HK$100 for the Hong Kong stock, both corresponding to 26x 2026 P/E, implying upside potential of 25.3% and 18.1%, respectively.

Key highlights from CICC's report include:

**3Q25 Results Slightly Exceed Expectations** Tencent Music reported 3Q25 revenue of RMB 8.46 billion, up 20.6% YoY, with Non-IFRS net profit attributable to shareholders rising 32.6% YoY to RMB 2.41 billion, slightly above CICC's estimate (RMB 2.30 billion). The outperformance was attributed to stronger-than-expected non-subscription music business performance.

**Resilient Music Subscription Business, Growth Potential in Non-Subscription Segments** - **Online Music**: 1) Subscription revenue grew 17.2% YoY to RMB 4.49 billion in 3Q25, driven by a net addition of 1.3 million paying users (total: 126 million) and a 10.2% YoY increase in blended ARPPU to RMB 11.9/month, supported by rising SVIP penetration. CICC expects 4Q25 paying users to increase by another 1.3 million sequentially, with ARPPU potentially reaching RMB 12.1/month. 2) Non-subscription revenue surged 50.3% YoY to RMB 2.48 billion, led by concerts and artist economy revenue. Full-year growth for this segment is projected at 35.7% YoY.

**New Business Investments May Impact Short-Term Margins but Offer Long-Term Leverage** 3Q25 gross margin stood at 43.5%, with stable sales expenses QoQ and a 5.3% YoY rise in administrative expenses. Management highlighted offline concerts and IP-based economy as key investment areas for sustainable long-term growth. CICC attributes the margin fluctuation to structural impacts from higher revenue contribution from concert-related businesses. While investments in concerts/IP may persist into 2026, 4Q25 margins could recover sequentially, with further upside in the medium-to-long term.

**Dual-Core Strategy to Unlock Full Industry Chain Value** The company is deepening partnerships with global record labels to build its proprietary IP portfolio while innovating platform features and multi-device scenarios. Management emphasized content monetization, premium content, and feature privileges as key growth drivers. CICC believes Tencent Music's comprehensive influence in the music-entertainment ecosystem will translate into commercial advantages over time.