Mizuho lifts Tencent Music target to $13 on strong core revenue
Investing.com | Editor Lina Guerrero
Published Mar 19, 2024 05:26PM ET
On Tuesday, Mizuho Securities adjusted its outlook on Tencent Music Entertainment Group (NYSE:TME), increasing the price target to $13.00 from $12.00, while reaffirming a Buy rating on the shares. The revision reflects the company's core music revenue surpassing consensus expectations by 5 percentage points, attributed to a rise in subscriptions and advertising.
This improvement in revenue composition has also enhanced gross margins, which have grown by 260 basis points sequentially, reaching 38.3% and exceeding market predictions by 150 basis points.
Tencent Music's strategic shift towards bolstering its core music business is seen as a positive move that aligns well with the company's fundamental strengths and resources. Despite anticipating only a modest rise in revenue for the fiscal year 2024, the quality of earnings is expected to continue its upward trend, with a projected 14% increase in non-IFRS net income.
The forecast for revenue growth is to become favorable in the third quarter of 2024 as the company moves past the challenging comparisons from its social segment.
For the fiscal year 2025, Mizuho has revised its estimates, anticipating a 1% increase in revenue and a more significant 12% boost in EBITDA. The new price target is based on a 12x multiple of the firm's expected FY25 enterprise value to EBITDA ratio.
This adjustment reflects confidence in Tencent Music's financial performance and strategic direction, particularly as it continues to navigate past tougher comparative periods.
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