Cloud Music Earnings: Finishing 2023 on a High Note; Duopoly Dynamics Continue to Bolster Margins

Cloud Music’s second-half 2023 earnings beat our expectations, and we are raising our fair value estimate by 18% to HKD 153. The bulk of our upward revision comes from the assumption that Cloud Music can maintain current cost discipline, while the duopoly structure of China's music streaming market won’t ignite a price war that could erode profitability. The company turned profitable for the first time in 2023, and Cloud Music is on a better footing to deliver consistent shareholder returns. We think the company’s shares are deeply undervalued, trading at a 30% discount to our fair value estimate.