Good evening and good morning. Welcome to Tencent Music Entertainment Group's first Quarter 2023 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 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. At this time, all participants are muted. After management's presentation, there'll be a Q&A session. [Operator Instructions]. And please be advised that today's webinar is being recorded. With that, I'm 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. We are off to a great start in 2023. Our strategic emphasis on quality growth propelled strong growth of our online music revenues in the first quarter. As the revenue size of our online music services has now catch up with social entertainment services for the first time, it signifies that our long-term commitment to developing a sustainable online music business model is bearing fruit. In addition to a healthy increase in our total revenues, our focus on efficiencies optimization also drove robust net product growth. Content is the bread and butter of our businesses. We continue to deepen partnerships with top music labels and artists, so as to enrich our iconic music catalog and vertical content offerings as well as to expand our users benefit. We established a strategic collaboration with Rock Records forward-looking statements, providing users with iconic Chinese songs and original soundtracks of popular TV dramas, such as the works of Chenyue Chang, Emil Chau, Jonathan Lee, Wu Bai and Mayday. We also strengthened our strategic partnership with Li Ronghao and Fenghua Qiushi whose managed artists include Lu Han and Black Panthers, as well as with HYBE from South Korea with artists such as BTS and SEVENTEEN on its roster. Additionally, with the feature of a seven-day head-start period, our partnership with JJ Lin for his new digital album was well-received among users. The new album also broke his previous sales record in terms of GMV on our platform. On top of that, we also reached collaborations with well-known artists including KUN and Oaeen for head-start benefits on their new songs releases on other areas, such as merchandise sales, online and offline performances, and artist-fan interaction events. As for music verticals, to satisfy the…

Thank you, Cussion. Hello, everyone. Moving on to our platform innovations. In the first quarter, we further refined users' musical consumption experience. We're advancing audio live streaming services. In addition, by further exploring large language models, we energized our platform ecosystem with a broader range of AITC applications that are meeting users diverse and nuanced music taste in new and exciting ways. On the front of users music consumption experience, our efforts to enhance sound quality and effects combined with our optimized operations in different listening scenarios have been well recognized by users. This further bolsters users' stickiness or monetization capabilities. As a result, higher users engagement brought us a year-over-year growth of average daily time spent per daily active user who listening to the music on our platform. We have extended our premium sound quality and the effects to cover a wider range of scenarios during the quarter. In addition to lowering the auto-mix sound effect, we also introduced customized sound effects for Teens in Times' album [Foreign Language]. This song effect highlights highlights vocal details and instrumental layers creating an air of a live performance. A total of 2.3 million users have used this song effects in 170 million streams. Moreover, we extended our premium sound quality to in-car use cases. For example, our QQ Music's Galaxy Sound Effect maximizes the performance of in-car audio systems as it can finetune its song effect to match many in-car audio systems of mainstream car models. This has further enhanced our users' listening experience. In addition, we also offer a highly personalized and engaging music experience that caters to users' unique preference and tastes. For instance, we launched our 3D Music Player Interface and customized playlists with various design templates, where users may choose their favorite styles. Beyond that, we tailored…

Thank you, Ross. Hello, everyone. During the first quarter, we have seen enhanced monetization in our online music services. We booked robust year-over-year growth in online music services revenues, driven by the advancement of both subscription and non-subscription businesses. On the subscription side, a strong performance was propelled by the growing number of paying users and its ARPPU, which comes to 94.4 million and RMB 9.2, respectively. Notably, our online music paying ratio hit a record high of 15.9%, while our ARPPU expanded sequentially for the fourth consecutive quarter. All these results reflect our refined content operations, users' higher willingness to pay for premium sound and effect features, as well as more effective promotions. In addition, our IoT service has been growing over the past few quarters. Seeing its increasing importance to our overall business development, we began to include certain IoT devices in the disclosure of operating metrics for our online music services, starting from the first quarter. On the non-subscription side, it also delivered strong year-over-year growth. Advertising revenue grew notably year-over-year, mainly due to lower revenues last year caused by COVID-19 impact, increasing interest from advertisers in our innovative advertising formats, as well as improved macroenvironment. In particular, we have seen an increasing advertising spend from advertisers in the e-commerce, gaming, travel and food and beverage industries. Meanwhile, revenue from our ad supported mode also grew well as more users adopted this model. In addition to TME Live's advertiser sponsorship mentioned by Cussion earlier, we cooperated with Uni-President Soup Daren and Heineken in the first quarter to create customized brand zones, playlists, and music festivals, helping advertisers increase brand visibility without innovative ad formats. On top of advertising, we also enhanced our ability to monetize through artist merchandise, long form audio and music distribution. In terms of…

Thank you, Tony. Hello, everyone. Next, I'll discuss our results from a financial perspective. In the first quarter of 2023, our total revenue resumed the year-over-year growth and reached RMB 7 billion, up by 5% year-over-year. With the success of effective cost control and improved operation efficiencies, our non-IFRS net profit margin reached 20.9% this quarter. In Q1, music subscription revenue continued its rapid growth and reached RMB 2.6 billion, up by 30% year-over-year and by 11% sequentially, propelled by rapid expansion of both online music paying users and ARPPU. Specifically, monthly ARPPU in Q1 was RMB 9.2, increased by RMB 0.9 from last year and RMB 0.3 from last quarter, recording four consecutive quarter of expansion. Online music paying user grew to 94.4 million, up by 18% year-over-year, representing a 5.9 million net adds sequentially. The strong ARPPU and paying user growth resulted from high quality content and services, attracting member privileges and more effective promotions. As we extend use cases and the service offerings, we are seeing growing demands on our key services and expect more opportunities to monetize these in this area in the future. Therefore, starting from this quarter, we have updated the definition of online music MAUs and include certain IoT device users in our online music MAUs. Additionally, revenue from advertising achieved a strong growth year-over-year due to strong performance from our ad-based relationship model as well as low as lower advertising revenues for comparison in Q1 2022 due to the impact from COVID-19. We are pleased with such results and remain confident about long term growth potentials in advertising business. Social entertainment services and other revenues were RMB 3.5 billion, down by 13% year-over-year due to the evolving macro headwinds and the competition from other platforms. To adapt to the changing environment, we…

[Operator Instructions]. And today's first question comes from Alex Poon from Morgan Stanley.

Congratulations on very strong results. My first question is regarding our music subscriber growth business. 5.9 million net adds is a record high number and it's been accelerating from the last two quarters. Can management explain the drivers behind this? And how should we think about the net adds growth outlook for rest of the year?

The subscription revenue, which is very much our focus, as we are seeking for a balanced growth between both paying user as well as ARPPU, subscription revenue grew at a 30% rate on a year-over-year basis, which as you pointed out is an accelerated pace compared to previous quarters. This can be attributed to a number of factors. First, the quality as well as the value of our subscription service continues to improve. It was a long term effort in the making. And we're providing more and more attractive content and features within that subscription service. Secondly, as a result of our long term effort and focus, users' willingness to pay for premium features such as sound quality, as well as sound effects continue to increase. Thirdly, we continue to improve the promotion of those high quality content and product features. And finally, more effective as well as targeted promotional discounts around new subs, as well as better retention programs also helped drive ARPPU higher. And as a result, we continue to expect a very strong growth in our subscription revenue looking forward.

And our next question comes from Alicia Yap from Citigroup.

I would like to get some update if management could provide us on how are we thinking about overall growth outlook, especially for online advertising, and also the music subscription, if you can give some color as well on the social entertainment as well.

Overall, we continue to expect that 2023 to be a year of positive growth for both top line revenue as well as bottom line net profit. In addition, most likely from the second quarter, we expect our quarterly revenue from online music services to exceed social entertainment services to become a primary source of revenues. In terms of online music, specifically, we expect subscription revenue to continue to deliver quality strong growth, driven by both paying users and ARPPU. In addition, combination of advertising, long form audio, artist merchandise and IoT services are expected to contribute to the growth meaningfully. In terms of social entertainment, while traditional video live streaming will continue to face competitive pressure, our audio live streaming and international business can partially compensate. Combining all of that, with our continued focus on cost management to improve efficiency, we expect net profit margin to continue to improve, resulting in net profit growth that are likely stronger than previously expected.

And our next question comes from Lei Zhang from Bank of America.

Congrats on the strong set of results. My question mainly on music gross margin. Can you give us some updates on your music gross margin in the fourth quarter? And how should we see the trend going forward? It seems we have a better outlook on our sub and the music business for the rest of year.

About music gross margin, we don't give the very specific detail number of this business. We will talk about the whole gross margin of our business. Gross margin is 33.1% in Q1, increased by 4.1%, year-over-year. Now, there are some positive factors as follows. One, there's the strong growth of monthly ARPPU and net adds of new subscriptions. And two, the growth of advertisement revenue. And the third, even social entertainment revenue faced downside pressure and the revenue mix change also had the negative impact on our gross margins. The revenue sharing costs of live streaming has been [indiscernible] they decreased the in event promotion activities and increase operational efficiencies. We focus on good performers and high quality content. And the fourth, we will optimize the content cost model of ROC and increase the ROC requirement. We also benefit from the development of our inhouse original content production. And the fifth, we will optimize the technology and operational strategy related to bandwidth and storage capability and improve the utilization of our service and the equipment. And looking forward, in Q2 in 2023, we expect the subscription revenue and advertising revenue will continue to be strong growth. And we will continue to increase our operational efficiencies and monitor our costs. We expect our gross margin increase sequentially in Q2.

And our next question comes from Wei Xiong from UBS.

You guys mentioned just now that you've seen good recovery in offline and also in the performance market. So just wondering if management could elaborate on how we can participate more and potentially benefit from the offline event opportunities? And could these offline events generate meaningful incremental revenues for us and contribute to the better growth of our music segment this year? Or do they have synergies with our online music subscription business.

After reopening, the live concerts and music festival market has been really successful and promising so far. Our unique positioning will be both of our online and offline capabilities. And we will be also focusing on the quality rather than the quantity of the shows. So we will continue to upgrade and also improve our TME Live IP by more in depth partnership with our potential partners in the show's content, co-production, etc. And also, we will definitely bring additional revenues to us. And also, it will further contribute to the healthy development of TME's content ecosystem in the long run. We're seeing the positive trend in industry driven by the increasing demand for live entertainment experience and also the willingness of consumer to spend money on tickets and events. But, however, it's also worth noting that, although the offline performances have been very promising so far, but this is also a low margin business for the organizers. So with this in mind, our approach will continue to be ROI based, with a prudent investment mindset. But we will continue to think that it's going to be an exciting project for us in the long run.

And our next question comes from [indiscernible] from CICC.

Congratulations on strong performance. My question is about profit guidance. How does the management view the challenge of OpEx and net profit in 2023 and in the long term? Is it possible to share some guidance?

Last question, I guided on gross margin. So, I will talk about the operational expenses. And in 2023, we will continue to focus on improving our efficiencies. Q1 selling and promotion expenses, operating on low cost level, down by 36% year-over-year. Overall, the reduced spending on user acquisition had impacted our MAUs. Our core music subscription service [indiscernible] channel growth. And for the headcount management, we will continue to invest in product enhancements, our technology innovations, new products and new business, such as IoT, our [indiscernible] program, inhouse content productions. And meanwhile, we will pay more attention to improve the profitability of business and the products. And Q1, the adjusted net profit margin is 20.9%, an increase on a year-over-year basis and sequentially. And looking forward to Q2, we expect our selling and promotion expenses and the G&A will be stable compared net of in Q1. And with the growth of our revenue, we expect the adjusted net profit and adjusted net margin all will be increased.

And our next question comes from Wei Fang from Mizuho.

Firstly, can you help update us on your super VIP membership program in terms of adoption? And secondly, I was just curious, how's your IoT monthly fee compared to your average mobile monthly fee?

First of all, we continue to add more and more attractive member privileges behind our super VIP package. While we're not ready to disclose specific numbers, we are pleasing to see the continued growth in the number of subscribers under the SVIP membership. In terms of the IoT services, we are seeing very good growth trajectory, primarily in the in-car space. We continue to penetrate more and more car models. For example, recently we penetrated into several notable Mercedes models. And in those models, we are offering subscription services. And very often, you do see those offered at a full price point – at the full price as opposed to the discount price. And increasingly, you will be separating the price plan between the IoT services as well as the mobile device. So, you have to actually pay a separate fee in order to access for IoT subscription, in addition to being able to access the subscription for mobile device.

And our next question comes from Yiwen Zhang from China Renaissance.

My question is regarding the cooperation with Tencent, we see some really successful cooperation regarding the TME Live, so how should we deepen such cooperation? Do we expect we should expand the cooperation to more areas?

The WeChat music feature is actually powered by QQ Music, to a large extent. Our objective is to extend the QQ Music service onto WeChat to provide WeChat users with high quality music experience. And this cooperation enable us to help music creators tap into the significantly broader reach that are offered by WeChat. And as a way to promote this service, WeChat users can enjoy our service for free for a limited time between now and June 30. From July 1 onwards, to access certain premium content and features, users will be required to become a paying subscriber. We believe this cooperation will generate incremental revenues for TME as it will allow us to attract incremental subscribers in the long run. And given the significantly broader reach of WeChat vis-à-vis TME, we are delighted to be able to work very closely with WeChat on this cooperation to bring our music service to more users and no doubt we will continue to deepen cooperation with WeChat as we go.

We'll take our last question today from Lei Zhang from Bank of America.

Can you give us some updates on a very hot topic recently on AIGC and how we can use this technology? And do we see this could help us to say, in general, have some cost control, obviously, OpEx? Any updates or any feedback on AIGC topic?

[Foreign Language] We'll continue to deepen our research into the applications that are based on LLMs. One example of that is we'll be looking to develop a chatbot where users can chat to the chatbot about the kind of music they like to listen to and to discover new content. We'll be cooperating closely with Tencent to develop application based on their LLMs as well as to work with open source LLMs to develop other applications such as those around image creation. Similar to Google's music LLMs, we will look to provide tools to help musician significantly reduce the barrier to music creation and lower the cost and to improve the efficiency, to help them with song creation, as well as lyric writing. And then finally, in the areas of social entertainment, we'll look to create virtual items that will ultimately be used in live streaming type use cases

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

Thank you everyone for joining us today. If you have further questions, please feel free to contact TME's IR team. This concludes today's call and we look forward to speaking to you again next quarter. Thank you.