Tencent Music Earnings: Tuning Into Growth and Shareholder Returns; Shares Undervalued

Narrow-moat Tencent Music’s fourth-quarter 2023 earnings were broadly in line with our expectations. We roll forward our model and modestly lift our fair value estimate to USD 13 per ADR (HKD 51 per share) from USD 12.50 (HKD 49.10). We also lower our Morningstar Uncertainty Rating to High from Very High, reflecting increased clarity in the competitive environment and the company's ongoing improvements in profitability.. We view the music streaming company’s shares as undervalued, trading at a 13% discount to our fair value estimate. We believe the market continues to underestimate the size of Tencent’s Music long-term subscriber base and the opportunity to lift subscription prices further.