UPDATE: Morgan Stanley Downgrades Tencent Music Entertainment Group (TME) to Equalweight

Morgan Stanley analyst Alex Poon downgraded Tencent Music Entertainment Group (NYSE: TME) from Overweight to Equalweight with a price target of $14.00 (from $23.00).

The analyst comments "TME cut to EW and PT to US$14, as we expect music revenue growth to peak in 2021 at 37%,after accelerating for two years,and decelerate in 2022 on 1) declining music ARPPU/MAU,2) a rising paying user base despite our assumption of 6mn net adds per quarter (consensus 5.5mn in 2022e; tracking 5mn in 2021),3) removal of exclusive music licenses, 4) ad revenue growth slowing to <100% YoY in 2H21,and 5) immaterial long-form audio revenue,given TME's low ARPPU strategy and audio ads' low CPM. Our 2022 EPS estimate is 30% below consensus,and we forecast only 6% net profit growth in 2022(consensus: ~40%), due to long-form audio investment, flattish/lower social entertainment revenue,higher opex as % of revenue by 2ppt YoY in 2021E,and deceleration of music revenue growth. TME is trading at 2022e P/S of 3.8x and P/E of 32x,vs. trough levels of 3.5x and 23x. We raise our WACC from 11% to 13% to reflect regulatory concerns for China's internet industry including anti-trust."

For an analyst ratings summary and ratings history on Tencent Music Entertainment Group click here. For more ratings news on Tencent Music Entertainment Group click here.

Shares of Tencent Music Entertainment Group closed at $12.72 yesterday.

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