Tencent Music Entertainment New debate, same rating: Streaming floor replaces cash optionality

Research evidence excerpt

Tencent Music Entertainment New debate, same rating: Streaming floor replaces cash optionality

Asia Pacific Equity Research

14 May 2026

Tencent Music Entertainment

New debate, same rating: Streaming floor replaces

cash optionality

We remain Neutral and trim our FY26-27 earnings estimates by c.3% to reflect China

slower paying conversion in the price-sensitive cohort under Soda-driven free-tier Head of China Equity Research

pressure and AI-enabled content substitution; premium SVIP and the non-sub and Co-Head of Asia TMT

IP/offline line (1Q26: +28%, offline triple-digit) remain intact and partially offset Research

at the GP level. We roll forward to 2027E and set our PT to a 10x P/E (vs. 12x Alex Yao AC

2026E previously), a contained de-rating pricing the SAMR-imposed regulatory (86 21) 6106 6505

ceiling on strategic upside, the information vacuum from retired quarterly paying- alex.yao@jpmorgan.com

user disclosure, and wider near-term dispersion around Ximalaya integration SAC Registration Number: S1730523020001

economics, while partially crediting the newly legible capital allocation Daniel Chen

framework. The 1Q26 print confirms the bear case on streaming and partially (86-21) 6106 6205

daniel.q.chen@jpmorgan.com

confirms the bull case on IP/non-sub monetization; we find risk/reward balanced. SAC Registration Number: S1730521040001

• The framework for evaluating TME has shifted following SAMR approval from Olivia Xu

“a value trap with cash optionality” to “a capital allocation execution story with (86-21) 6106 6138

a regulatory ceiling on strategic upside, but no constraint on operational olivia.w.xu@jpmorgan.com

SAC Registration Number: S1730525060001

upside.” On our IRR framework – comparing 5yr synergy-adjusted earnings

J.P. Morgan Securities (China) Company