TME 是一项被低估的投资机会，其高现金市值比为应对竞争和增长放缓提供了安全边际。

Tencent Music Entertainment's stock fell by 68% over the past year. The price-to-earnings ratio reached the single digits . Cash liquidity represents more than half of the company's market value.

The company is profitable, pays dividends, and buys back shares. How could it be so cheap?

And when it comes to Tencent, one can argue that this exists. Tencent Music Entertainment Group practically controls online karaoke in China, with licensed publishing rights from major global companies such as Sony, Warner and Universal, as well as proprietary Chinese content, live events, and everything on the Tencent platform.

Over time, revenues have stagnated a bit recently with the presence of TikTok and competing services. But the company still exists. It is profitable and has a strong cash position.

That means a few billion, what is that? $6 billion. This is equivalent to half the market value.

Healthy profitability. There are investments in stocks, 2.7 billion. Shares in Universal, Spotify, and things like that . Other financial assets, approximately an additional two billion dollars.

This amount is slightly less , 2 billion yuan, but there is a lot more.

Looking at the business, these are long-term investments, 5.3 billion , and I've converted them here into dollars.

Cash, 3.4 billion, 4.5 billion in total. There is also some notoriety, especially from the recent acquisition. But what is interesting is that the total assets amount to 17 billion.

If you look a little at what their non- traded investments are, we have a stake in Spotify, and Spotify has a large stake in the company there.

A stake in the " Universal Music" group. This is another interesting situation to consider.

The stock is low. Bill Ackman wanted to pay three times the current price. We may investigate this further again . Strategic shares and financial assets, 4 billion.

Long-term deposits, 2 billion plus 4 billion in cash. What is this ? This is roughly equal to the entire market value in liquid assets, which is the equity of 12 billion.

You are buying at this price for book value. They recently acquired Himalaya, a podcast company. I don't know what kind of work they will be doing in their own businesses.

Good cash flow, especially over the past few years, with each year exceeding one billion dollars. They started paying dividends and began making large share buybacks. They have announced a $1 billion share buyback, and they have already done $ 400 million in just one quarter, so they may increase that again.

They acquired Himalaya for 2.4 billion. They have issued shares for that, so when it comes to share buybacks and share issuances, that is always a key question, but they are integrating the work into their own business, and there are likely to be overlaps with users, but they are creating more of that ecosystem.

300 million users, and 500 million here. Therefore, there must be some new users there. But they spent 50% of their historical net income on this acquisition, showing that it is not an easy business when you have to spend so much of what you have earned over time to maintain your position in the market.

However, they expect some boost in revenue. They anticipate some pressure on current margins, but in the long run they need to win over the highest paying and most valuable customers from Himalaya to their platform.

But the main challenge is that Tencent 's monthly active users have fallen by 4.3% to 551 million, and this is what the market fears.

When you look at what's happening, we have "Tomato Smooth Listening," and you're competing with " ByteDance," "TikTok ," "Duyin," and things like that . This is an extremely tough competitor. There is a lot of competition.

Chinese people cannot spend more than 8 hours a day on their phones listening to things. For this reason, and with that increasing competition, the stock declined. But we have to see, well, what do we get in return for our market value of 12 billion?

We have already discussed the criticism . So, 6 billion in cash, and then they buy back the shares. They announced it . Why do they issue debt to carry out buyback transactions ?

Because they simply cannot get the 6 billion out of China.

They take out a loan, and then slowly over time they make buybacks and everything. Therefore, they are trying to take advantage of the huge pile of cash they have, which they are simply not allowed to return to global investors.

This is how China operates. It's not just a 10% tax they'll have to pay to send money out of China. Simply put, it's not allowed. But well, out of the 600, they can take out a loan here, and do that .

They are still profitable. They are still making a billion. They carry out some buybacks and pay dividends. They made this huge acquisition. They may make other acquisitions.

But there is still $1.3 billion in net income compared to $ 12 billion in market value. This is still crazy. There is some growth. It is a competitive environment, but with 50% of the market value in the form of cash, assets and other shares, it looks like an investment value.

What is worrying the market? We have a slowdown in organic growth, a decline in active users, an increase in competition, and a weakening of social entertainment simply because of too much competition, and they are lucky that I am not in China to deliver investment videos yet. Sorry for the joke. I couldn't resist it.

But well, there is pressure on the margins because of that merger. The value of that merger can only be seen over the coming years, and many analysts have downgraded its rating.

Goldman Sachs and JPMorgan have downgraded the rating, but Barclays remains optimistic. What do the analysts see? Competitive pressures, and pressure on margins from Himalaya , mean they want to see improvements, as is always the case with analysts, before they say anything positive.

When everything looks good, analysts become overly optimistic. When everything looks bad, analysts panic. Therefore, we can obtain information from analysts, but not recommendations to buy, hold, or sell.

There are some concerns about dilution as they expand at lower margins through the acquisition of Himalaya. In any case , we can say that the downside has now been priced in. We're hitting rock bottom in cash flow, shares, value, Spotify, and things like that.

Therefore, we can say that Tencent Music now represents an investment value. I've looked a bit at the conference call and what's going on, and that might be the key. When the CEO starts talking about the second growth engine.

This means that the first growth engine, the core business, has reached its full potential, and they are now looking for new growth areas, which can always be costly, such as acquiring Himalaya and the like.

There is a lot of competition, but there is also a collaborative environment at Tencent that they can rely on. This was a great question about competitive advantage, and they discussed how they focus on higher-paying customers , and will inevitably lose those weaker, lower-paying customers.

This is why we are seeing a 5% decrease in the number of users.

That's a great question. Regarding the Himalaya merger and then the shareholder returns. Total cash is 44 billion, which is 40% of the current market value, and possibly 50% when all assets are taken into account.

So, how will we enhance shareholder value in the future? As for reinforcements, they will continue to do what they are currently doing. Regarding the Himalaya merger, they say it will reduce overall profit slightly over time, but the conversion rate and everything else should grow.

Regarding the buyback operations , they have already been completed and they are continuing with them . Therefore, over time it should generate a good return. The fundamental question is: Will Tencent Music still be in the music business 10 years from now?

Will competition completely destroy it, or will it remain profitable ?

If it remains profitable and grows in its ecosystem, in this and that, and in buybacks, then this will be a good investment. Especially with the margin of safety in the shares in this and that.

Therefore, I decided to add it here for the time being to the Value Bets section of our general Value Investment box. So, I must say that I am very interested in Tencent Music.