Morgan Stanley lifts Tencent Music PT to $16.50, stays bullish

On Tuesday, Morgan Stanley (NYSE:MS) updated its outlook on Tencent Music Entertainment Group (NYSE:TME), raising the price target to $16.50 from the previous $14.70 while maintaining an Overweight rating on the shares. The revision comes in the wake of Tencent (HK:0700) Music’s first-quarter earnings for 2025, prompting the analyst to make slight adjustments to the company’s earnings estimates for the years 2025 to 2027, with changes around 1%. Currently trading at $14.56, TME has shown impressive momentum with a 35.94% return over the past six months. According to InvestingPro analysis, the company’s overall financial health is rated as "GREAT" with particularly strong scores in profitability and price momentum.

The price target increase is attributed to two main factors. Firstly, the analyst incorporated the market value of Tencent Music’s strategic investments, applying a 30% holding discount. This valuation approach is consistent with Morgan Stanley’s treatment of Tencent Holdings (OTC:TCEHY). Specifically, the investments considered include Tencent Music’s 2% stakes in Spotify (NYSE:SPOT), 2% stakes in Universal Music Group (AS:UMG), and 0.8% stakes in Warner Music Group (NASDAQ:WMG), collectively contributing an additional $2.00 value per American Depositary Share (ADS).

A pivotal event that influenced this recalibration was the distribution of UMG shares to Tencent Music by an associate company consortium in the first quarter of 2025. This distribution acted as a trigger for re-evaluating the investment’s market value.

The second reason for the price target uplift is an updated currency exchange rate forecast. Morgan Stanley’s economists have revised the year-end 2025 Chinese yuan to U.S. dollar exchange rate to 7.5, compared to the previous assumption of 7.6. The adjustment reflects the firm’s latest economic projections and has implications for the translated earnings and valuation of Tencent Music.

Tencent Music Entertainment Group, which operates a collection of music streaming services, has been recognized for its diverse investment portfolio in the music industry, including stakes in major global music companies. With a market capitalization of $23.04 billion and a P/E ratio of 24.86, the company maintains a strong market position. As the market processes Morgan Stanley’s updated analysis, Tencent Music’s stock will continue to be watched closely by investors tracking the company’s financial performance and strategic investments. For deeper insights into TME’s valuation and growth prospects, including 10 key ProTips and comprehensive financial analysis, visit InvestingPro.

In other recent news, Tencent Music Entertainment Group reported impressive first-quarter results, showing both revenue and profit growth. The company posted revenue of RMB7.36 billion ($1.01 billion) for the quarter ending March 31, which was an 8.7% increase year-over-year and surpassed analyst estimates of RMB7.27 billion. Non-IFRS diluted earnings per ADS also exceeded expectations, reaching RMB1.37 ($0.19) compared to the anticipated RMB1.32. The growth was primarily driven by its online music services segment, which saw a 15.9% year-over-year revenue increase to RMB5.80 billion ($800 million). Music subscription revenue rose by 16.6%, supported by an 8.3% rise in paying users to 122.9 million. Despite these gains, revenue from social entertainment services and others fell by 11.9% due to adjustments in live-streaming features and stricter compliance procedures. Tencent Music’s gross margin improved to 44.1%, up from 40.9% in the previous year, thanks to higher-margin music subscriptions and advertising services. The company concluded the quarter with RMB37.67 billion ($5.19 billion) in cash and cash equivalents, term deposits, and short-term investments.

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