Good evening, good morning. Welcome to Tencent Music Entertainment Group’s Third Quarter 2023 Earnings Webinar. I am Millicent Tu, Head of IR and the company. TME announced its quarterly financial results today before the U.S. market opened. Earnings release is now available on our IR website and via Newswire services. Today, you will hear from Mr. Kar Shun Pang, our Executive Chairman, who will start the call with an overview of our company’s strategies and business updates. Next, Mr. Ross Liang, our CEO, will share additional thoughts on our platform strategies and developments. Finally, Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to Safe Harbor statements in our earnings release, which applies to today’s call as we will make forward-looking statements. Please note that the company will discuss non-IFRS measures today, which are more thoroughly explained and reconciled to the most comparable measures reported under IFRS in the company’s earnings release and filings with the SEC. [Operator Instructions] And please be advised that today’s webinar is being recorded. With that, I am very pleased to turn over the call to Kar Shun, Executive Chairman of the company. Kar Shun?

Thank you, Millicent. Hello, everyone and thank you for joining our call today. We are pleased to report another quarter of strong growth in our online music services despite the top line headwinds of the social entertainment business while adjusting certain industry-wide live streaming interactive features represented some challenges for the quarter. It ultimately placed us on an even stronger footing for our long-term sustainable development. As a case in point, our evolving businesses have become more resilient, illustrated by group-wide margin expansion and strong cash flows for the quarter. What’s particularly worth mentioning is our online music subscriptions. This business has registered accelerated year-over-year revenue growth. Growth momentum carried into the third quarter with expansion in both of our subscriber base and ARPPU. Our paying user base grew further to 103 million, a strong testament to the broad appeal and high value of our music products and services. Our impressive content offerings, compelling subscribers’ privileges and interactive product features, together with strong execution, enabled us to attract new subscribers while retaining existing ones. We are also pleased to see that monthly ARPPU expanded to RMB10.3, thanks to disciplined promotions, effective member acquisitions and our high subscriber retention rate. These achievements will result from the solid execution of our dual engine content and platform strategy. It further unlocks the value of music and pave the way for our long-term success. I’d like to share a few highlights. First, we cultivate deeper mutually beneficial partnerships with record labels and artists. Our insights across content and users as well as our holistic approach to growing the industry, supported our strengthened co-operations with music partners. For instance, we strengthened our collaboration with TFBoys on the 30-day head start release of their 10-year anniversary single, See You Tomorrow, as well as the sale of…

Thank you, Kar Shun. Hello, everyone. Music is the heart and soul of TME. I would like to begin by commenting that quarter three results highlighted the efficiency gains across our platforms. Specifically, our ecosystems are strong platform, scale and AI important technology, have enabled us to transition into an increasingly robust music house. From the operational level, one key highlight is our effort to expand the application of AI technologies across our products and services based on our upgraded music IRM. This quarter, we integrated our IRM integration platform, allowing third-party models to be better integrated with an adaptive to the music vertical. With support of AI, we enhanced the music discovery and the consumption efficiency, creating a more engaging user experience. First, better content connection and discovery. This quarter, we continued to upgrade our recommendation middle platform and enhanced personalized recommendations on each of our music apps. As a result, we reached a new record in the share of streams from recommendations as well as an increase in the number of songs added to users’ personal series. We also significantly allowed the barriers to music discovery. For example, QQ Music introduced its Quick Listen mode, which allows users to listen to a song’s chorus and then quickly look at the full song. Another example is Kugou Music’s revamped version featuring faster discovery of multiple songs, song covers as well as AI run versions played by different installments. Second, better facilitating music consumption through more user cases and entertainment scenarios. In the in-car use test, we extended our mobile and offerings, such as our seamless user interface, premium song quality and a tailored playlist to enrich in-cabin music consumption. To increase our coverage, we recently signed additional car models including Mercedes-Benz smart and more BYD models. Partnering with the…

Thank you, Ross. Hello, everyone. Next, I will discuss our results from a financial perspective. In the third quarter of 2023, revenues from online music increased by 33% to RMB4.6 billion on a year-over-year basis, driven by strong growth in our music subscription and advertising business. Our total revenues were RMB6.6 billion, down by 11% year-over-year due to decline of revenues from social entertainment services and other services. Music subscription revenues in Q3 reached RMB3.2 billion, up by 42% year-over-year and by 10% sequentially, driven by further expansion of both online music paying user space and the monthly app. Basically the number of online new paying users grew to 103 million, up by 21% year-over-year, representing net adds of 3.6 million users sequentially. Monthly ARPPU was RMB10.3 billion, up at 17% year-over-year and 6% sequentially, marking its sixth consecutive quarters of growth and another record high amount. This was result from our products more appealing member privileges in the active product features, attractive music content and the promotion and member acquisition strategies as well as high subscriber retention rate. Additionally, revenues from advertising achieved strong growth on a year-over-year basis as our diversified product portfolio and innovative ad formats, including ad-supported model and sponsorship advertising are highly attractive to the advertisers. Our campus music contest, QQ Music 2023 young music contest [indiscernible] music competition and the Coca-Cola sponsored 2023 [indiscernible] music festivals were two good examples of how our portfolio of music IPs attracted various branded advertisers. Social entertainment services and other revenues were RMB2 billion, down by 49% year-over-year. The decrease was mainly caused by our adjustments to certain live streaming interactive functions and more stringent company procedures as we implemented several enhancements and risk control measures. This is in line with our expectation about live streaming revenues as…

Thank you, Shirley. [Operator Instructions] And the first question comes from the line from Alicia Yap from Citigroup. Alicia, please go ahead.

Hi, thank you. Good evening, management. And thanks for taking my questions. Congrats on the solid result. I’m going to ask the questions and [indiscernible] reverse. I am going to translate myself. So I wonder if management can share your preliminary view on your expectations for the online music revenue growth in 2024 and how you expect the business and the competitive event gets to evolve in the next 3 years? In addition, wondering if management could share how you think the macro environment might affect the growth prospect in next year and also over the next 3 years? Thank you.

Thank you for your question, Alicia. And I think 2023 is a critical year for us. We have been transitioning and expanding our music ecosystem, making our business mix much more resilient. This is actually factored in a number of aspects. First, we responded quickly to the challenge facing, the live streaming industry, taking proactive actions to adjust our social entertainment business and making it more sustainable. Secondly, we continue to drive the prosperity of our music ecosystem while diversifying our revenue streams. And thirdly, our core business like the online music subscriptions and advertising record robust growth, mid and evolving macro environment. So you can see this in our second and third quarter financial results. For 2022, I think that assuming we are going to have a stable external environment, and we see the opportunity to drive our overall top line growth and margin expansion compared to 2023, especially, we will continue to drive solid growth of our online music business with subscription revenue driven by the subscription growth and also ARPPU expansion as well. Outside of the subscription revenue, we expect the revenues from advertising and new initiatives such as artist merchandise to continue to grow healthily. For the social entertainment services, we will continue to execute our current operational strategy with the backdrop of the macro factors and competition. Before 2024, our primary target is to stabilize the business and better serve our core users. As part of our holistic music ecosystem, we expect our social entertainment business to continue generating a healthy cash flow for us. For 2024 earnings, we aimed to point our strong results so far in 2023 and continue to drive both gross and net margin expansion. For the 3 years outlook, I think TME’s core businesses, especially our online music services still have lots of room to grow over the next 3 years. We are excited to see the growth opportunities in existing areas, including the subscription, ARPPU advertising and more potential from the long-form audio as well. In addition to the online music services as well, we have being – we extended our rich and expanding capabilities along the entire music value chain. We have successfully developed our new monetization models to increase our target addressable market with the diversifying revenue streams. And these include the live performances like concerts and music festivals, artist merchandise and more. With all these initiatives still in the early stage, we believe that we have built a strong foundation to tap into more areas for the long-term growth. So in a nutshell, I think that we are glad that our core businesses like the online music service show great resilience amid the current macro environment. And we are confident that our content and platform dual-engine strategy will continue to capture more opportunities for our future healthy growth.

Thank you. The next question comes from the line of Alex Poon from Morgan Stanley. Alex, please.

Congratulations management for a very strong quarterly results, especially the subscription business. My question is related to our ARPPU growth. So third quarter, we have achieved record high absolute number and also on a year-over-year and sequential growth basis. Going forward, because our blended ARPPU is still even lower than our Double 11 promotion price, and a lot of users are paying the auto renewal price of RMB15, so how should we think about the trajectory? How much visibility do we have for continuing this very strong ARPPU growth in the next 2, 3 years maybe because there is also a macro issue, deflationary environment also competition with NetEast, which is still charging at a lower price than us?

Thank you very much. Thanks for the question. Well, regarding the ARPPU, actually, we maintained our rep growth for six consecutive quarters. And for this quarter, it’s already RMB10.3. And because we also continue to downsize our promotional events and also make the membership benefits more attractive and we also adjusted the price policies. Well, at the same time, you can say that we actually make some concessions regarding the discounted rate for the consecutive subscription business but we’re also proactively adopting the effective operational strategies. Therefore, we will be able to retain our users. That’s raising our – in Q3 of this year actually show a very good performance. Well, at the same time, and we are still very confident regarding our future subscription business revenue growth. You’re also asking about the Q4 performance, and we are also very happy and confident we’re going to grow the number. In the same part of your question, you asked about the outtake for the next 3 to 5 years. And you mentioned actually our fee is around RMB50 and we’re going to keep an eye on the industrial competition, our own operational and also factoring the elements you mentioned, for example, like inflation and then to further optimize our performance.

Okay. The next question comes from the line of Zhang Lei from Bank of America Merrill Lynch. Zhang?

Hi. Thank you, management for taking my question. Noticed that our gross margin is pretty on track in past quarters and reached the record high since 2019. And can you share with us the trend of music and social entertainment business in terms of gross margin? And how should we look at the margin trend going forward?

Gross margin is 35.7% in Q3, increased by 4.1% year-over-year due to the factors as follows. First music subscription revenues had a significant growth expansion in paying user space and improvement in multi-ARPPU, both had a positive impact on our gross margin. Second, the robust growth of advertising revenues also has a favorable impact on gross margin. Third, we gradually ramped up our self-owned content, which benefit our gross margins. Fourth, we optimized the content cost model of ROC and increased ROC requirement of content costs. Our online music revenues growth ratio was faster than net ratio of content costs. Five, license cost of long form audio decreased at a year-over-year basis. And sixth, after the adjustment to live streaming business, the proportion of revenues from rising membership and advertising in social entertainment revenues have increased, which had a favorable impact on our gross margin. And seven, the optimized technology and operation strategy related to brand – and short capability and improved utilization of our service and equipment. Our gross margin has improved for six consecutive quarters. Looking forward to Q4, we expect subscription revenue and advertisement revenue will continue to be strong growth. On the cost side, we expect our in-house made content will have a positive impact on gross margin continuously, and we will continue to increase our operational efficiency and monitor cost items by our model. Despite the live streaming revenue will be decreased in Q4, we expect our gross margin will be increased sequentially and look forward in next three – to next year, we expect our gross margin will be increased, but the increased degree will be stable – will be later than this year.

Okay. The next question comes to the line of Lincoln Kong from Goldman Sachs. Lincoln, please.

Thank you, management for taking my question. So my question is about the online music business, the subscription business. So first of all, can you management elaborate a bit more how this business in terms [indiscernible] on doing in the third quarter, so including advertising, supply chain, digital outcome, etcetera? We’re particularly interesting, the enterprising investment trend into the fourth quarter as we just passed a single stay. So how do we see the enterprising ramping up for the year or for this fourth quarter. And when we think about 2024, what are areas we think have – still have growth potential [indiscernible] we see?

Thank you very much. And thanks for your question. In Q4 of this year, and we do believe we’re going to maintain a good growth for the subscription business as long as what we’ve seen performed in Q3 of this year. Well, regarding the advertising business because in Q4 of the year, we’re going to have the Double 11 shopping festival. So we do believe the Q4 performance would outperform Q3. Well, regarding the outlook of 2024. And in 2024, we believe our subscriber base will continue to grow, but maybe the growth rate would be slowed down compared with 2023. Well, regarding the subscription business model in 2024, besides working on the mobile solutions, we’re also going to intensify our efforts in the in-car application and IoT application. We’re also going to step up our efforts regarding the Super VIP business, providing additional functions like the effect of the music and – music and we’re also going to continue to roll out household or the family membership and couple membership and continue to grow our app. Well, regarding the revenue from the advertising business, and for next year, in 2024, we still would like to keep a positive over the total economy brands. So, we are going to maintain our revenue growth target of advertising business in 2024, the same as 2023. Well, regarding the growth for next year, and besides what we mentioned in the ad-supported mode, we are also going to intensify our efforts regarding the commercial promotion, and we are going to leverage the promotion along with flag events and concerts because us doing in, we will be able to make sure we find a deep bond between our commercialization and offline events. This would also be a great growth driver for our next year advertising business.

The next question comes from Thomas Chong from Jefferies. Thomas, please.

Hi. Good evening. Thanks management for taking my questions. My question is relating to AI and LLM. Given we have been seeing AI is so important on content creation and also supporting our musicians and also driving the user engagement, just wanted to get some color with regard to our 3-year strategies in LLM and AI. And what kind of – what level of spending should we expect over the next couple of years?

Thank you very much. Thanks for the question. Well, regarding the AI-related question, I believe we are going to and by ways what has been provided by our parent company, Tencent, we do believe AI is going to be a very strong and robust driving force for the next few years. Well, due to our relationship with Tencent Group and for some basic models, actually we are not going to do dive in for more research because Tencent Group has already released its system, and we are also going to leverage the program produced by Tencent Group to continue to deepen our business with their model. Actually, our business is more application driven. So, what we are going to do in the near future is to leverage the existing LLM to fully support the solution with great integration. And we do believe that we will be able to seamlessly switch to the leading language models in the industry, including batch one on your end and events app [ph]. As you probably noticed, in Q3 of this year, we have already launched our music model connection platform 2.0. And we are also fully committed in accelerating the model use and especially making the model be a part of our production system so that it can help us to trying to continue the cost, and they are also going to boost our work efficiency. Well, you can also say that in the next 3 years, what we are trying to do is still leverage the existing LLM to continue to expand its application. For example, we already have the listening together product that is based on the updated LLM. In other words, it can allow the users to listen to the same music, we are also able to chat with each other and also find out by having those models, the Q&A and also the chat efficiencies been greatly improved. Well, at the same time, compared with what I mentioned in the fundamental LLM, what we are trying to improve is actually our AIGC capacity. And we are also research and adopting the leading engines in the industry and some preliminary results has already been achieved in video, in graphics and in audio and you know some of the commercial results has already been harvested in our live streaming performance. Last not least, we also believe that AIGC play a vital room for music creation and user experience enhancement. It can provide the user a more personalized, diversified yet immersive music instruments. In the near future, we will continue to invest and explore the improved innovation in this suite. We are also going to join hands with our technical partners and the music creators so that we will continue to develop and to create in the content industry.

Thank you. The next question comes from Alex Yao from JPMorgan. Alex, please. Alex?

Hi guys. Can you hear me, okay?

Yes, we can hear you now. Yes.

Yes. Okay. Thank you management for taking my question and congrats on a good quarter. I have a question on sales and marketing. You guys have been rationalizing the sales and marketing spending very successfully in the past few years – sorry, past few quarters. Now, that the revenue mix has significantly shifted towards music and on the back of potentially more online/offline integration and involvement in the offline music activities. How should we think about the sales modeling strategy going forward? For example, next year, are we still going to see a flattish or even slightly lower sales and marketing expenses versus this year, or should we think about, as you focus increasingly more on music with more potential offline activities, the sales and marketing will gradually ramp up in the next few quarters? Thank you.

Thank you very much. Thanks for your question. Yes, indeed, for the first few quarters, our sales expense has been well managed because we always adopted ROC to well manage our expenses. Well, regarding the future, actually, we do believe we are going to improve our profitability regarding the music of the business and we are still going to invest in the music channel business. But as we are adopting the ROC, we will be able to confidently translate the investment into returns. As you may probably notice and on the other side, we continue to strive for a better self-produced and co-creation content, and we are also going to launch more offline events or activities. So, for sure, we are going to need more promotional activities to do so. But because we adopted the ROI management methodology, so in other words, our investment is highly efficient and effective. Well, regarding the Q4 of 2023, as you probably noticed, Q4 is always the season packed with marketing and promotional events. So, I think our sales and marketing expenses in Q4 of this year would be the same as what we saw last year. So, regarding the 2024, the sales and marketing expenses, from the absolute value perspective, it might be some growth. But compared with the revenue growth, I do believe our investment is truly efficient.

Thank you. The next question is coming from Zhang Xueqing from CICC. Xueqing, please.

Follow-up on the questions about IoT, as also mentioned before, you will expand IoT membership in the future. And so I would like to ask about your question that what’s the scale of IoT and MAU [ph]? And how many are paying users? What’s our plan to convert them into paying user in the future? And how should we think about the long-term monetization potential? Thank you.

Thank you very much. Thanks for the question. Regarding the IoT business, our strategy is to make sure we have a very healthy growth for the loud speaker and the TV business where, at the same time, we are also going to step up our efforts in further expanding the user base for the in-car service. So, as you probably noticed, for the loud speaker and the TV business because the future growth potential might be limited. So, what we are doing now is to try and to dive deep into the existing user base making sure we have a very good monetization and also making sure we can grow up in the existing customer base. Well, regarding the in-car service, actually, we attached this great importance to the new energy vehicle as the new energy vehicle industry continued to grow, and we also believe that in China, we also see ever-increasing growth regarding the intelligent costs. So actually, regarding the strategies for the in-car business, we are going to keep a very good relationship with auto OEMs and including the domestic auto OEM and even Tesla. We are going to make sure our content could be well provided into their driver in the cockpit. Well, at the same time, that’s still for us, will lead the way regarding the sound quality and also the sound effect. So, we really want to make sure we continue with our high-quality sound quality and sound effect in the in-car service. And we also have our indigenous technology regarding the primary sound quality and also the 2D sound effect, making sure the users, when they are in their car, they can also enjoy the high-quality service from us. Well, for the past 2 years, we are also clearly in the case that – up from the absolute value perspective, the in-car service is better than the mobile and service. While, at the same time, we also noticed that what we are doing now is to trying to expand the user base for the in-car service. When we grow our customer base to a certain number, we are going to leverage more commercial activities and strategies to turn them into the paying user.

Due to the interest of time, we take the last question from Wei Xiong from UBS. Wei Xiong, please.

Thank you management for taking my question and congrats on a good quarter. My question is around shareholder returns, so good to see the execution of buyback program in the past quarter. Looking ahead, how should we think about the pace of buyback? And what factors do we consider in determining the timing and maybe the pace of the buyback execution? And also what are the ways do we think about to drive better shareholder returns? Thank you.

Thank you very much. In Q1 of this year, we have announced $500 million share repurchase program for repurchasing the Class A ordinary shares. As of September 30, 2023, we made cash repurchases of approximately 50.8 million ADS in the open market for a total consideration of nearly $103 million. We will continue to keep an eye on the market, especially the latest market trends and also capture opportunities to create more values for our shareholders. By keeping our eye on the market, we will also consider further repurchase program if the time and the opportunity arise.

Okay. With that, I will turn the call over to Kar Shun for closing remarks.

Thank you everyone for joining us today. If you have any further questions, please feel free to contact TME’s IR team. And this concludes today’s call, and we look forward to speaking with you again next quarter. Thank you so much and goodbye.

Thank you.

Thank you.