Good evening and good morning. Welcome to Tencent Music Entertainment Group’s Fourth Quarter and Full Year 2022 Earnings Webinar. TME announced quarterly financial results today after market close and earnings release is now available on our IR website at ir.tencentmusic.com as well as via Newswire Services. Today, you will hear from Mr. Cussion Pang, our Executive Chairman, who will start the call with an overview of our recent updates. Next, Mr. Ross Liang, our CEO; and I, Tony Yip, CSO, will offer additional thoughts on our product strategies, operations and business developments. Finally, Ms. Shirley Hu, our CFO, will address our financial results before we open the call for questions. Before we continue, I refer you to our Safe Harbor statement in our earnings press release, which applies to this call as we will make forward-looking statements. Please also 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 pleased to turn the call over to Cussion, Executive Chairman of TME. Cussion?

Thank you, Tony. Hello, everyone and thank you for joining our call today. Looking back on 2022, firm execution of our dual engine content and platform strategy build a solid progress in a fast-changing macro environment. With a keen focus on high-quality growth and product innovation as well as our highly effective cost optimization measures, we led the industry in the rebound of bottom line growth and delivered steady growth in online music subscriptions throughout the year. Our diversified suite of monetization tools expanded and made progress during the year such as ad-supported mode, long-form audio, as well as audio live streaming and our international expansion, among many more. With our confidence in the long-term prospects of the company, we had completed the $1 billion share buyback program approved by the Board in 2021. Looking ahead into 2023, as we are repositioning ourselves to better capture future growth areas, we currently expect our quarterly revenues from online music services will exceed those from social entertainment services at some point within this year. Meanwhile, with our relentless focus on executing our growth strategies and operating efficiencies, we are confident to achieve year-over-year growth in total revenues and profitability as well as continuous improvement in user quality in 2023 while fueling the thriving music industry Next, I would like to talk about remarkable achievements we have made in many aspects of our businesses build a point our insistence on excellence and innovation. One integral part of our strategy in 2022 was to continue improving TME’s content ecosystem. First, we are building extensive collaboration with top artists, labels and industry partners, both at home and abroad to bring our users and artists’ most compelling content and experiences. We have recently reached an agreement with JVR to extend our close strategic partnership and will…

Thank you, Cussion. Hello, everyone. With our refined mission in 2022 to create [indiscernible] with music and technology, 2022 was a year of our continued exploration of TME with level of creative efforts to satisfy our users’ nuances and diverse music tastes and to provide all-round musical companionship to our users through each of our four entertainment pillars: listen, watch, sing and play. We have been deploying and developing breakthrough AIGC tools to further import music-related content creation and enhanced production efficiency. In addition to the LyraSinger engine, which we used to develop our virtual idols such as Cussion mentioned, we rolled out the Muse Engine in the fourth quarter, which enables automatic large-scale music posters production based on melody and lyrics. We have also expanded use cases for our patented technology, Lingyin Engine to launch several popular audio books read by the synthetic voice of [indiscernible], including the [indiscernible]. What’s more, ahead of the new year, receivers of QQ Music’s newly launched VR greeting card can walk into the gift generated automatically and receive blessings as avatars in an exquisite virtual space. In the future, we will continue to explore the application of large language models in the field of pictures, texts, video and other content as well as music recommendation and search to meet the massive demand for music-related content. Next, one of the biggest advancements in the year was to holistically improve our sound quality and sound effects and the premium users are clearing and more vivid listening experience, which also contributes to the growth of music subscription as well as we are adding this companion privilege to our memberships. For example, nearly half of our QQ Music, music tracks now support super quality or above and our high-rise standard has also been upgraded to high-rise [Foreign…

Thank you, Ross. Hello, everyone. During the fourth quarter, the surge in COVID cases and churn of our casual users amid competition led to the year-over-year decline in online music mobile MAUs. Along with cost optimization measures aim that boosting monetization efficiency as a platform of scale. Meanwhile, we continue to strengthen our monetization capabilities with improved operating efficiency and have achieved high quality growth in both subscription and non-subscription revenue during the fourth quarter. Most excitingly, our subscription revenue delivered healthy growth year-over-year and quarter-over-quarter, reflecting our balanced approach. Online music paying users, a high-quality user cohort, maintained a strong growth trend and ARPPU also continued to improve sequentially for the third consecutive quarter and increased year-over-year. The strong paying user and ARPPU momentum was driven by our improved operating strategy, leading to optimized content quality, more attractive member privileges broadened sales channels and more effective promotions. Subscribers to our Super VIP membership, TotiHoyan, continued to grow during the fourth quarter as we expanded our offerings to provide premium sound quality and premium master tape and added a wealth of privileges such as long-form audio, digital album and karaoke to the membership package. On the non-subscription side, its revenue also improved year-over-year and quarter-over-quarter during the fourth quarter. Revenues from our advertising business continued to recover quarter-over-quarter. Specifically, ad supported mode delivered strong performance during the quarter with sequential growth in its revenues. Through our music with Brand’s partnership, leading advertisers, including WU LIANG CHUN, Coca-Cola, KFC and JD.com embraced TME Live and TMELAND as innovative channels for musical format advertising in the fourth quarter, particularly given their appeal to young users. On the merchandising side, we work with a wide range of A-List artists, including Lu Han, JJ Lin, Wang Yibo, Wang Jackson, Wang Roy, [indiscernible] this quarter…

Thank you, Tony. Hello everyone. I’ll discuss our results from a financial perspective. The fourth quarter of 2022 marked another quarter to evidence our firm commitment to cost control and operating faces improvement with continuous growth in IFRS and non-IFRS profit for the 4th consecutive quarter. In Q4, our net profit was RMB1.2 billion. Non-IFRS net profit was RMB1.5 billion, up by 71% year-over-year and by 6% sequentially. Total revenues were RMB3.4 billion, up by 0.8% sequentially. In Q4 2022, music subscription revenues grew to RMB2.4 billion up by 21% year-over-year and by 5% sequentially. Online music paying users grew to 88.5 million, up by 16% year-over-year, representing the 3.2 million net adds sequentially. Monthly ARPPU in Q4 was RMB8.9 in up by RMB0.1 sequentially and by RMB0.4 from Q4 2021. The strong paying user and ARPPU growth were driven by more attractive member privileges, such as improved sound quality, broadened sales channels, more effective promotions, optimize content quality and high-quality services. This will also resulted from our ongoing efforts to cultivate users’ willingness to pay for music and improvement in operating businesses. Revenues from advertising continued to recover and grew sequentially as markets start to recover and we launched new monetization models. To give our users more options, we launched ad-supported model and provided more inventory, which contributed to our revenue growth. With increased interest in innovation advertising channels, TME Live and TMELAND became popular and an attractive and leading advertisers for music format advertising. We remain confident about the long-term growth potentials in advertising business. Social entertainment services and other revenues were RMB3.9 billion down by 18% year-over-year due to the evolving macro headwinds, competition from ad platforms and surge in COVID-19 cases in the fourth quarter of 2022. To adapt to the changing environment and to stabilize…

[Operator Instructions] And today’s first question comes from Alicia Yap from Citigroup. Alicia, your line is opened. Please unmute yourself and go ahead.

Hi, thank you. Good evening, management. Thanks for taking my questions. And also congrats on the solid quarter. So with TME concluding 2022 with improving margins and also the fundamental trends, I think Shirley just also comment a little bit the 2023 outlook. So if management can elaborate a little bit more detail in terms of overall, what are you expecting for the online music revenue growth specifically, is there any change on your music subscriber growth target or any ARPPU trend that you’re expecting? And also for the social entertainment, do you still expect the revenue as we begin the year-over-year declining trend into the 2023? Thank you.

Thank you for your question. So overall, we currently expect that 2023 will be a year of positive growth for both top line revenues of around mid-single-digit percentage as well as a bottom-line net profit of around low-teens percentage. In addition, we expect quarterly revenue from our online music services to exceed that of social entertainment services to become a primary source of revenue during some point within this year. This is driven by growth of both China’s pro-growth policies at the macro level as well as our continued investments to strengthen our operations. In the – in terms of online music, we expect subscription revenue to continue to deliver healthy growth of over 20% year-over-year, driven by both growth in paying users as well as ARPPU. In addition, advertising, long audio, IoT services are all expected to contribute meaningfully to the growth. In terms of social entertainment, while traditional video live streaming continue to face competitive pressure, our audio live streaming and international businesses can partially compensate by delivering healthy growth. Net-net, that means social entertainment is expected to see a milder rate of decline compared to last year. And combining all of the above with our continued focus on cost management to improve efficiency, we currently expect net margins to also improve into 2023.

Thank you. Our next question comes from Alex Poon from Morgan Stanley. Alex, your line is open. Please un-mute yourself and go ahead.

Congrats management on very strong results. My question is related to gross margin trend in 2023 and maybe even longer. In ‘22, because we have news growing faster than social segment, we are still able to achieve gross margin expansion and how sustainable is this in ‘23, maybe even ‘24 as music segment for now, the gross margin is still lower than the social segment and music continues to grow faster than social. So, how will our gross margin profile change over the next 1 year to 2 years?

Okay. I will talk about gross margin. Gross margin is 33% in Q3, increased by 4.2% year-over-year and increased by 0.4% sequentially. There are several positive factors on our gross margin. First, the increase of net adds, monthly up of music subscription and the growth of long subscriber revenue, such as digital album, artist-related and merchandise, long form audio revenue will all have positive impact on our gross margin. And second, decrease – the increase of promotion activities and increase the content quality of performance, revenue sharing ratio of live streaming have been controlled and a decrease on year-over-year basis. And third, we increased RC, requirement of content costs and optimized model of RC we restructured the agreement with some music labels. Started to switch MG model to revenue-sharing model we got more reasonable MG, and we have the positive feedback. And the fourth, the optimize of the technology and the operation strategy related to [indiscernible] and the storage capability and improved utilization of our service and equipment. Our operational costs decreased year-over-year based on the sequentially. While the decrease of social entertainment revenue and the change of revenue mix in social entertainment revenue has a negative impact on gross margin. Looking forward to 2023, all these positive factors will be continued and the negative factors also can also be continued. We will continue to expand the suite of monetization tools such as AD supported advertisement, artist-related merchandise, super VIP membership and we expect our online music revenue will keep growth. So, we will continue to forecast – to focus on increased efficiency of all business units and tightened our cost terms control in 2023. So, we expect our gross margin will be increased on a year-over-year basis in 2023.

Thank you. And our next question from Lincoln Kong from Goldman Sachs. Lincoln, your line is open. Please un-mute yourself and go ahead.

Thank you, management. Congrats on the good results. My question is on the enterprising business. How do we see so far, let’s say, year-to-date enterprising demand recovery for us? And we talk about this ad support model. So, in terms of the new format of ads or creating more ad inventory, how do we think about the progress here especially how to better monetize our game [ph] i.e. into ‘23. What’s our outlook here?

Yes. Thank you for your question. We continued to see a recovery in the advertising revenues, especially following the reopening post-COVID. The splash screen ad continued to recover at a healthy pace. In addition to that, ad-supported mode advertising continued to ramp up and currently account for roughly about mid-teens percentage of the advertising revenue. And then thirdly, in terms of sponsorship advertising, while during the fourth quarter, it temporarily weakened due to COVID. We do expect with the reopening, there to be many more live events and as a result, advertising – sponsorship advertising opportunities. So, all-in-all, we do expect this year to be a strong recovery year and a year of positive growth for the ad business. And then in terms of verticals, in the fourth quarter, given the e-commerce seasonality, we did saw a meaningful increase in the e-commerce vertical. And then in addition to that, Internet services in general, food and beverages, consumer electronics as well as local services are also verticals where we saw continued demand from advertisers.

Thank you. And our next question comes from Lei Zhang from Bank of America Securities. Lei Zhang, your line is open. Please un-mute yourself and go ahead.

Hi management. Thank you for taking my question and congrats on the solid results. My question is mainly regarding your sales and marketing and investment plan in 2023 since we have a pretty good cost control last year, so can you give us more color for 2023? Thank you.

Okay. About the selling and the promotion expenses, we have taken tight control on selling and marketing expenses in Q4 continuously and resulting in a 65% decrease on a year-over-year basis. And we balanced MAUs and monetization when evaluating the healthiness of business. We focus more on managing such as level of user engagement, user retention reach and paying users. We will further monitor our eye of each promotion channel and manage the internal and external resources more effectively, improve efficiency of selling and marketing expenses in the future. In 2023, selling and promotion expenses will be operated at a very low level and will be continued to decrease on a year-over-year basis, but the cutting degree will be limited compared to those in 2022. And in 2023, we will invest in the content promotion, so that will be a new way for our upgrading our MAUs, yes.

Thank you. And our next question comes from Wei Xiong from UBS. Wei Xiong, your line is open. Please un-mute yourself and go ahead.

Hi. Good evening management and thank you for taking my question. I want to get some of your thoughts around AIGC. As management mentioned, we are exploring possibilities and leveraging technology in that area. So, how do we assess TME’s strategic positioning around AIGC? What are some of the potential benefits and business opportunities that we plan to pursue this year? And what could be the potential investment or cost implications related to that? Thank you

We have always invested in AI, in particular, recently with a focus in LLM, large language models. Clearly, that will lead to more applications. We will continue to leverage partnerships with Tencent. Examples of our applications would include recommendation as well as playlist in a more conversational setting. Other examples would include music posters, greeting cards, synthetic voice, all of which are already currently being applied to our platform. Into 2023, we will invest in our own R&D in LLM to drive music-related conversational applications and also to help musicians dramatically reduce the barrier to their creativity. And overall, that should result in more creativity and high-quality content, which is good for the overall industry.

Thank you. And our next question comes from Xueqing Zhang from CICC. Xueqing, your line is open. Please un-mute yourself and go ahead.

Hey. Thanks for taking the question. And just a follow-up on a pool of music subscription business. We noticed that the program music side continued to improve this quarter? And how does management think about the improvement in the first quarter in content industry? You mentioned in the prepared remarks, it may be driven by optimized content quality, more attractive member privileges, more sales channels and more effective promotions, so give us more color on this way. Thank you.

Well, the short answer is yes. We do expect the ARPU to continue to improve, driven by all the things that we mentioned. So, a combination of continued improvement in the quality of our membership offering, the quality and the comprehensiveness of the privileges in our membership, more broadened sales channels which include internal kind of within platform channels as well as external outside of our platform channels as well as more effective promotions. And by more effective promotions, obviously, that would lead to a higher ROI when we do engage in promotions, which are helpful to ARPPU.

Thank you. And our next question comes from Thomas Chong from Jefferies. Thomas, your line is open. Please un-mute yourself and go ahead.

Hi. Good evening. Thanks management for taking my questions and congratulations on good set of result. My question is about the competitive landscape. Given that in terms of the sales and marketing spending and margin improvement, are we seeing the competitive landscape more stabilized and that’s less threat from the short form video? And my second question is about online music services surpassing social entertainment at some point for this year. I just want to get some color with regard to the long-term revenue mix, how should we think about online music services revenue contribution in the long-term? Thank you.

I will tackle the second part first about the revenue mix. As we mentioned, we do expect the music – online music services revenue to surpass social entertainment. And so clearly, what that would mean over the long run, we expect that to continue into the long run. So, we do expect the online music services to be the primary revenue source going forward as opposed to being a one-off effect. Within online music services, obviously in the fourth quarter, you have seen that music subscription grew just north of 20% and then non-subscription revenue grow at a faster pace than that, primarily due to the low base in 2021. And then looking into 2023, we obviously think that the effects will be slightly different. Music subscription will grow at over 20% on a year-over-year basis, as I mentioned. And then non-subscription revenue, we will see pockets of growth in the areas of advertising which is growing very well, long audio IoT services, but somewhat offsetted by volatility in digital album as well as sub-licensing.

Thank you. And our next question…

And also with the unique platform and content strategy of TME, TME is now starting to have some monetization through the content reductions, content licensing and also rising sponsorship with our life and brings. And also, as we mentioned, we started to have some artist-related merchandising revenue, which can help us to explore further e-commerce opportunities. Those will also help us to some new revenue streams in the future.

Okay. Thank you. And our next question from Charlene Liu from HSBC. Charlene, your line is open. Please un-mute yourself and go ahead.

Thank you so much. I have two questions. First, can you share your expectations for subscriber growth for paid music? And how should we think about impact from resumption of offline entertainment, first is willingness to pay as macro recovers post reopening? That’s the first question. Separately, on gross profit margin, I think management had mentioned that it still has room to improve further. What could be a mid-term target for GPM and also, I think kind of subset to that question is, how would investments into LLM impact us from a P&L standpoint? Thank you so much.

I will take the first part on the subscriber growth and perhaps Shirley can add a bit of comments around gross margin. Our subscriber growth has been following a secular trend. So, irrespective of COVID, irrespective of reopening, we continue to see a secular trend behind the subscriber growth. Our focus is much more on subscription revenue as a whole which is driven by both paying user growth as well as ARPPU. And Barry [ph] mentioned offline and more offline activities. I think bear in mind that that also benefit us in the form of advertising monetization, as Cussion mentioned, because we organized a vast number of offline music events and we generate a meaningful amount of sponsorship advertising revenue as a result. During the fourth quarter, that part of the business actually showed us some temporary impact because of COVID. Now with the reopening and with more offline activities, we actually expect there to be a positive impact to the sponsorship advertising revenue as a result. So, that would help act as a second growth driver to our online music revenue in addition to subscription.

And about the gross margin of music, we believe we can have the same gross margin rate about – came to the Spotify. And for the overall gross margin of our company, we believe in 2023, our gross margin will be increased and higher than that in 2022. And in the long-term gross margin, our target will be 35%, that is mentioned in our IPO, yes.

Thank you and we will take our last question today from Xueqing Zhang from CICC. Xueqing, your line is open. Please un-mute yourself and go ahead.

Thanks for another question. And one more question on labels cooperation. And today, we announced that TME reached an agreement with JVR and B’in Music, so can management give out some more color on labels collaboration and how does it affect our gross margins? Thank you.

Yes. Can we just repeat for the partners, for many music labels and artists domestically and also internationally. We insist to put an IP right and we try our best and be able to drive a healthy development of the Chinese music industry. So currently, we provide the most comprehensive music library and also the best top-page of music content for users in China. I think that in the – continuing in the long-term relationship, we will continue to work with the music labels in content co-productions and also with our meeting technologies that can help us to do the promotions of the music in a better manner. Besides, we are also focusing on some of the live events as the Chinese market is now reopened, we are seeing that there is a lot of live event opportunity coming up. So, for TME Live, that we are doing extremely good quality of music shows in last year. Most of them are online. But this year, we are going to have more offline events in partners with our music labels. And we are expecting that we can have more shows like the top artist concepts, music festivals and also some live house events as well. So, I think that we have demonstrated a really good long-term partnership with most of the music labels all over the world and we are the trustworthy and also the people that partner with them. So, we have expected to have more in-depth cooperation coming in the future.

Thank you. We are approaching the end of the conference call. I will now turn over the call to our host, Mr. Tony Yip for closing remarks.

Thank you everyone for joining us today. If you do have further questions, please feel free to contact our IR team. This concludes today’s call. Thank you and talk to you next time.