01698 Overview

Release of Seedance 2.0: ByteDance launched its AI video generation model Seedance 2.0 in February, showcasing advanced capabilities in full-modal input/output and narrative consistency, quickly gaining global attention.

Impact on Content Platforms: CICC reports that while AIGC tools like Seedance 2.0 may enhance efficiency and lower content creation barriers, they are unlikely to significantly disrupt mainstream online content platforms due to differing consumption scenarios.

Market Dynamics: The rise of AIGC tools could stabilize oversupplied markets like short videos while potentially increasing demand in undersupplied areas such as long videos and music, possibly leading to the emergence of new platforms.

Stock Market Reactions: Various companies in the tech and entertainment sectors, including Tencent and Kuaishou, are experiencing fluctuations in stock prices and short selling activity, reflecting investor sentiment amid the shift towards AI-driven products.

Trendy Toy Industry Growth: China's trendy toy industry is experiencing significant growth, transitioning from a manufacturing focus to content elevation, driven by the "self-pleasing economy."

Investment Recommendations: CICC has expressed optimism about the growth potential of the trendy toys and IP industry, recommending stocks such as POP MART, MNSO, CHINA LIT, and DAMAI ENT.

Investment Ratings and Target Prices: CICC provided investment ratings and target prices for several Hong Kong stocks, with all recommended stocks rated as "Outperform."

Short Selling Data: The report includes short selling data for the recommended stocks, indicating varying levels of short interest among them.

Stock Performance: TME-SW (01698.HK) has seen a decline in stock price by 0.364%, with short selling amounting to $7.28M and a ratio of 13.045%.

Market Concerns: Goldman Sachs highlights escalating market concerns, including competition in music streaming, profit margin pressures from non-subscription services, and the potential impact of AI on the music industry.

Valuation Insights: The stock is currently trading near the lower end of its five-year valuation range, prompting Goldman Sachs to view the risk-reward as attractive.

Rating Adjustment: Despite the challenges, Goldman Sachs maintains a Buy rating on TME-SW but has reduced its target price from HKD90 to HKD78.

US Stock Market Performance: US stocks showed mixed results, with the DJIA slightly up by 17 points while the Nasdaq fell by 1.2% due to Nvidia's decline.

Hong Kong Stock Market Opening: The HSI opened 66 points higher after a previous drop, while the HSCEI and HSTECH also saw slight increases in their opening values.

Tech Sector Updates: BIDU-SW reported a 42% YoY decline in non-GAAP net profit, leading to a 5.7% drop in its ADR, while MEITUAN-W postponed its launch in Brazil but opened higher.

Financial Sector Movements: HSBC HOLDINGS and AIA opened higher, while HKEX remained flat, indicating a generally positive trend in the financial sector despite varying short selling ratios.

Market Overview: The HSI opened 1.5% lower at 26,640, with significant declines in tech stocks such as TENCENT and KUAISHOU, which dropped 1.7% and 1.9% respectively.

Short Selling Activity: Notable short selling was observed in several tech stocks, including BIDU and BILIBILI, with ratios exceeding 20%, indicating bearish sentiment among investors.

PPI Data: China's Producer Price Index (PPI) YoY for January showed a decline of 1.4%, slightly better than the previous value of -1.9% and above the forecast of -1.5%.

AI Stock Rally: The AI sector saw gains with MINIMAX-WP rising 11.9% after launching a new programming model, while KNOWLEDGE ATLAS also experienced a significant increase of 16.9%.

4Q25 Results Outlook: Citi Research anticipates TME-SW's 4Q25 results will meet or slightly exceed expectations, driven by stable subscription services and growth in non-subscription music revenue.

2026 Focus Areas: Key areas to watch in 2026 include competition from Douyin's Soda Music, SVIP conversion rates, ARPU trends, online advertising revenue, concert income updates, and GPM and operating profit margin trends.

Competitive Concerns: While Soda Music's rapid user growth may not immediately affect TME-SW's core user base, ongoing competitive pressures are expected to hinder share price performance.

AI Integration Trends: The impact of AI on music creation and user behavior is a significant trend to monitor, with Citi maintaining a Buy rating on TME-SW's US stock and a target price of US$29.