Daiwa Raises TME-SW Rating to Buy, Lowers Target Price to HKD82

The analyst rating for TME-SW (01698.HK) was upgraded from Outperform to Buy by Daiwa due to their positive outlook on the company's monetization capabilities for moderate to heavy users and potential new revenue sources from events and peripheral products. Despite concerns over competition in the light music user segment in the short term, Daiwa remains optimistic about TME-SW's growth prospects. However, they lowered the target price from HKD91 to HKD82 to account for the trend of valuation downgrades among peers.

The analyst rating from CCBI for Tencent Music Entertainment Group (TME.US) is based on several key factors: 1. Outperform Rating: CCBI believes that TME is positioned to perform better than the market average, indicating confidence in the company's future prospects. 2. Target Price: The target price of US$27.10 reflects a projected PE ratio of 28x for 2026, which is considered attractive as it represents a 40% discount compared to the global leader, Spotify (SPOT.US). 3. Recent Share Price Decline: The recent decline in TME's share price is viewed as a favorable entry point for investors, suggesting that the stock is undervalued at its current price. 4. Strong Financial Performance: TME-SW's 3Q25 revenue and non-GAAP net profit exceeded market expectations, indicating strong operational performance, particularly in non-subscription music services. 5. Future Investments: The company plans to continue investing in offline events and artist merchandise to enhance its integrated music ecosystem, which, while potentially pressuring profit margins in the short term, is expected to strengthen its market position in the long run. Overall, the combination of a favorable valuation, strong recent performance, and strategic investments supports the Outperform rating.

The analyst rating for TME-SW (01698.HK) remains at "Outperform" despite a reduction in the target price from HKD 110.7 to HKD 92.1. This decision is based on the company's strong 3Q25 results, which exceeded revenue and earnings forecasts, enhancing its position as a leading music entertainment service provider. However, CLSA has lowered its 2026 adjusted earnings forecast by 7% due to the expectation of larger-than-anticipated investments needed to sustain revenue growth as the company shifts from subscription to non-subscription business models.