According to the research report released by Bocom Intl, Yun Music (09899) announced its Q1 2024 performance, with revenue of RMB 3.96 billion, a year-on-year increase of 3.6%, which meets expectations. Excluding one-time adjustment effects of certain copyright fees, the gross margin rate was optimized by 11/3 percentage points YoY/QoQ, exceeding the bank's expectations.
The bank stated that the quarterly net increase in membership scale reached a two-year high, slightly better than the bank's previous expectations. It is predicted that the number of members in the first half of the year will increase by 21% YoY and the average monthly per capita payment (ARPPU) will increase by 2% YoY. Product updates may affect live broadcasting traffic and lead to a QoQ decrease in revenue. Considering changes in revenue structure and the absolute value of copyright expenses increasing with the expansion of copyright, which may partially offset the impact of the scale effect of music revenue on fixed cost amortization, the bank conservatively estimates the gross margin rate of the company to be 33% in the second quarter and the second half of the year.
Based on the better-than-expected optimization of gross margin rate, the bank has revised its net income after adjustment to RMB 1.1 billion for 2024. Based on a comparable PE ratio of 20 times for music and copyright companies in 2024, the target price has been raised from HKD 104 to HKD 120. The competition pattern in the music industry is stable, and there is still a large operational space for paywall (15%+). The Bank expects the trend of membership growth to remain unchanged. The growth of online music revenue drives the amortization of fixed costs and optimistic profit margin improvement, which continues to release profits, so the bank maintains its buy rating.