CLSA: TME-SW Completes Acquisition of Ximalaya; EPS Impact Expected Neutral

CLSA issued a research report stating that TME-SW (01698.HK) +1.700 (+4.965%) Short selling $39.06M; Ratio 25.126% announced after market close yesterday (18th) that it has completed the acquisition of Ximalaya. The consideration comprises USD1.26 billion in cash and approximately 175 million Class A ordinary shares. Based on the last closing price, the broker estimates the transaction value at approximately USD2.7 billion. CLSA believes the impact on Tencent Music Entertainment Group's EPS will be neutral.CLSA expects Tencent Music Entertainment Group to absorb Ximalayas high-quality revenue streams, including membership subscription and advertising income. According to Ximalayas latest prospectus filed with the Hong Kong Stock Exchange, its 2023 membership subscription and advertising revenue amounted to RMB2.49 billion and RMB1.42 billion, respectively. The acquisition will enhance Tencent Music Entertainment Groups gross margin but dilute its operating margin, mainly due to the more favorable cost structure of audio content, while Ximalaya continues to invest heavily in sales and marketing amid intense user competition in the industry. Ximalaya recorded adjusted net profit of RMB224 million in 2023, with a margin of 3.6%. According to mainland media outlet LatePost, Ximalayas net profit exceeded RMB500 million in 2024.CLSA noted that although Ximalayas long-form audio application will continue to operate independently, Tencent Music Entertainment Group is expected to benefit from a richer content ecosystem and expanded user channels to realize cross-selling opportunities. Other synergy areas include expanding content distribution through WeChat Channels, AIGC production tools, and expertise in premium IP operations. CLSA rates Tencent Music Entertainment Group as Outperform, with an H-share TP of HKD60.3 and a US-share TP of USD15.4 for Tencent Music Entertainment Group (TME.US) . (da/u)(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2026-05-18 16:25.) (Real-time Streaming US Stocks Quote; Except All OTC quotes are at least 15 minutes delayed.)