Good evening, good morning and welcome to Tencent Music Entertainment Group's Fourth Quarter and Full Year 2023 Earnings Conference Call. I'm Millicent Tu, Head of IR at TME. We announced our quarterly financial results today before the U.S. Market opened. An earnings release is now available on our IR website and via Newswire services. Today, you will hear Mr. Kar Shun Pang, our Executive Chairman; and Mr. Ross Liang, our CEO, who will share an overview of our company's strategies and business updates. And then Ms. Shirley Hu, our CFO, will discuss our financial results before we open the call for questions. Before we continue, I refer you to our safe harbor statements in our earnings release, which applies to this call as we'll 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. At this time, all participants are muted. After management's remarks, there will be a Q&A session. And please be advised that today's call is being recorded. With that, I'm pleased to turn the call over to Kar Shun, Executive Chairman of TME. Kar Shun?

Thank you, Millicent. Hello, everyone, and thank you for joining our call today. 2023 marked our official transition at TME, as we remained dedicated to driving growth and prosperity across our music ecosystem while compiling the development of the entire music industry. Notably, our subscriber cost supplies with the 100 million milestone in 2023. We added 18.2 million subscribers for the full year, up from 12.3 million in 2022, a compelling testament to our content leadership, platform value, and high quality user experience. These streams grow consistent growth in music paying users and per user spend, anchoring our subscription revenues accelerating year-over-year growth throughout the year. In particular, in the fourth quarter of 2023, online music record faster than expected revenue growth. Paying users and ARPPU rose by over 20% year-over-year to RMB107 million and RMB10.7 respectively. These results mitigate the top-line headwinds from the social entertainment business and reasonably contributed to a lift in net profit for the quarter and the full year. Entering 2024, we are also seeing strong momentum in subscriber growth in the first quarter. Such solid performance was driven by our powerful content and platform dual engines. Now, I'd like to share this aspect of our content development efforts during this robust sustainable growth. First, by leveraging and deepening partnerships with domestic and international record labels. We consistently reinforce our competitive edge with an ever growing selection of copyrighted music. As a result, by the end of 2023, we had over 200 million music and audio tracks on our platform. In addition, self and co-produced content further differentiated our offerings, increasing our popularity among users. Lastly, our rich foundation of content and relationships with label partners empowered us to capture diverse opportunities across the user industry, amplifying content's value. Let me walk you through some…

Thank you, Kar Shun. Hello, everyone. Our laser focus on execution resulted in a year of solid music growth and efficiency gains. Our platform's strength, our insight into users and content and our dedication to innovation were crucial in achieving this success, all translating into enhanced music journeys for users. Now, I would like to elaborate on three areas we prioritize to enhance user's experience. First, we expanded the user's privileges. This included more industry leading song quality selections, rich song effects, more individualized players, new skins and additional interactive features. For example, we amassed China's largest Dolby Atmos music library, offering users a more immersive listening experience. Currently, our Dolby Atmos music service is available on mobile, in car, and the PC platforms, enabling a higher quality music experiences across more comprehensive use cases. Furthermore, we hosted a dedicated online Amway premium event for Jay Chou's new singer, Christmas Star, promoting closer fun artist bonding and a deeper sense of community. Millions of viewers sign up for the event within 24 hours of the registration opening. We also launched an AI wise feature for this single to further boost user engagement. Thanks to these tailored activities and the features. We have recorded a total of over 100 million streams from tens of millions of users. Second, we deepened connections with users through major upgrades across smart device experiences. QQ Music launched a significant upgrade on mobile and PC in December last year, offering customized user interfaces and music players. As part of Chinese Lunar New Year's offerings, we introduced an annual music reports feature that captures each user's unique music journey. Tens of millions of QQ Music users joined this annual review activity. This comprehensive report reflects the important personalized mutual bonds that we have built with users on…

Thank you, Ross, and greetings to everyone. I will now turn to our financial results. Our strong financial results for year 2023 reflected success in effective monetization for our music services and operational efficiency management with accelerating year-over-year growth in subscription revenues throughout the year. Our online music services delivered faster than expected revenue growth. We've largely mitigated the revenue decline in social and consumer service and others. IFRS net profit and the non-IFRS net profit were RMB5.2 billion and RMB6.2 billion respectively, up by 36% and 27% respectively on a year-over-year basis. In the fourth quarter of 2023, our total revenues were RMB6.9 billion, down by 7% year-over-year, primarily due to decline of revenues from social entertainment services and others. Our online mix revenues in Q4 2023 increased by 41% to RMB5 billion on a year-over-year basis. This surge was driven by the strong expansion of our music subscription and the advertising business supplemented by an increase in art is the related merchandise sales. Delving deeper into our music subscription performance for Q4. Music subscription revenues reached RMB3.4 billion, which is a 45% increase year-over-year and a 7% rise sequentially. Our refined operation allowed us to expand our online musical paying user based while enhancing monthly ARPPU. The number of online music paying users expanded to 106.7 million, representing a 21% increase year-over-year with a quarterly net adds of 3.7 million users. The monthly ARPPU rose to RMB10.7, up by 20% year-over-year and by 4% sequentially, marking the segment's success quarter of growth and setting another record. The continued growth in our paying user base was largely attributable to our enriched content offerings, enhance the member privileges such as industry leading sound quality selections, rich sound effects, more individualized players, new schemes and interactive product features such as in…

[Operator Instructions] And the first question comes from the line of Alex Poon from Morgan Stanley.

My question is regarding our 2024 and first quarter revenue growth expectation. Can you share some color, particularly about the music segment?

Thank you, Alex, for your questions. And, in year 2023, I think our online music business has consistently delivered a very strong performance, and our total monthly subscribers have reached, 107 million already, which is a new milestone to us. And the total revenue from the music subscriptions has, 39% year-over-year growth. The reason behind it basically due to the very efficient execution of TME's content and platform dual engine strategy and the countercyclical nature of the music industry. We believe that the fourth quarter's accelerated growth in the subscription revenue, really lay a strong foundation for, this year's growth. We are optimistic about the industry's future and believe that our users, central operations and expertise will continue to drive the business forward. We are committed to view a popular all in one music and audio platform. And from the product point of view, we will use the industry leading technology and knowhow to provide the best user experience for our users. From content point of view, we will continue to provide the best coverage of songs and also some of the new other format like, live performances of concerts and music festival, et cetera. So, in a nutshell, I think for this year, we are confident that the online music business will maintain a solid growth with subscription services serving as a primary driving force while continuing to explore the new opportunities in advertising and artist merchandise to grow the business. And as part of our holistic user ecosystem, our social entertainment side, we focus on better serving the core users and the revenue from this part will be relatively stable this year.

And the next question coming from Alicia Yap from Citigroup.

I have two very quick questions. One is, just curious if management can elaborate a little bit, in terms of the user profile for those that newly converted to the membership sub, for the past 12 months. Any colors in terms of the geographic location, cities, tiers, age group, and the song library that they tend to prefer. Anything you can share would be helpful. And then very quickly on second question is, if you can update on any upcoming strategies and expectation for the long form audio, in terms of the user, adoption rate and also the revenue trends.

Actually, our user base is already more than 100 billion as I mentioned in the presentation. So the demographic profile of our user base is very relative to the population demographic structure in China. From the activity of the user, we can see the most active user or a largest group of our user is still aged between 80 to 30 years old. And we can also say that our subscription user is also very active among all the user group we have. We're still regarding the user profile and their allocation geographically. I think it is the same as the demographic allocation of China. And we may have a more active user in the first tier cities where majority of our users are still distributed in Tier 2 and Tier 3 cities in China. Well, in our later operations, we're also going to keep an eye and be more focused on the young user groups because they are still the one with the most potentials to tap. Well, regarding your question of the long audio, our current strategy is still we're going to make the long audio fully integrated with our music platform as QQ Music and Kugou Music. And until now, we find out the strategy is very effective. But at the same time, we're also going to keep an eye on the long audio and especially how active it is and the monetization capacity of things at long audio. And we're also going to leverage ROC in order to source the most popular content in the market. We're at the same time for the long audio, we're also going to accelerate its penetration into the in car market because we clearly notice that indeed the content like the novels are very popular for the in car application. Well, at the same time, generally speaking, that 2023 would be a very important year for the long form audio or we call it 2023 a year of the transformation. The result and performance of the long audio is also better than our expectation. So based upon our great performance in 2023, we hope that long audio, the audio also continue its distribution and commercial efficiency improvement on our music platform.

And next question comes from the line of Lincoln Kong from Goldman Sachs.

My question is on the margin, especially the gross margin side. We have seen in fourth quarter, accelerating gross margin expansion on a Q-on-Q basis, more than 200 basis points. Could you elaborate in terms of what are the reasons for that? And when we're thinking about the 2024, what will be the key drivers for further gross margin expansion in terms of up gross, the operating leverage from, content call assigned minimum guarantee, or increasing mix of our self-produced content. What will be the ceiling or medium-term sort of target for our music business gross margin under this context?

Yes. Gross margin is 38.3% in Q4, increased by 5.3% year-over-year. And the main factors as follows. The first, music subscription revenues have significant growth, higher monthly up and the paying user base growth both have positive impact on our gross margin and the robust growth of advertising revenues also has the favorable impact on gross margin. And the third, we gradually ramp up our self on the content, which benefit our gross margin. And we can see the piece of our own content is increased rapidly in Q4. And the first we have been focused on ROCE to manage content across more efficiently and build a win-win relationships with labels and artists. Our online music revenues, the gross ratio was faster than that ratio of content cost. And, for, gross margin, in the Q4 2024, we expect our gross margin will be keep increase and compared the piece will be lower than the Q4 in 2023. But with our revenue from, subsequent revenue and the advertising revenue also expect to have increased revenue. So we think that the gross margin will be increased in Q1 2024.

The next question comes from the line of Fang Wei from Mizuho.

I have ARPPU related question. So looking at your music ARPPU trajectory, you guys finished the year, with 16% year-over-year growth, and I believe your largest peer also delivered a positive growth. But despite that, I think you're paying user growth, maintained a very solid expansion, right? So it looks like consumers are happily paying up. So I was just wondering if management can help elaborate on your techniques behind and is that fair to assume continued momentum into 2024.

I think for the ARPPU, we have adopted a holistic approach to grow the subscription revenue with flexibility in balancing between the subs growth and also the ARPPU expansion. So, I think that we have a strong start on the subs growth in Q1, 2024 and partially because of the impact of promotion during the transiting year. And so marginal, the ARPPU fluctuation is to be expected. But I think for the remaining policy in 2024 overall, I think the trend should be slightly upward. So I think that we will monitor and also manage it very wisely to ensuring that we have a good balance between the subs growth and also the ARPPU expansion. But you're right that we believe that, full number of years of educations, I think that of the music lovers in China right now do see the value of music and they are willing to pay more in the future.

The next question comes from Zhang Lei from Bank of America Merrill Lynch.

Two questions here. First is I think you have pretty good margin and cash flow trend? So do we consider any shareholder returns, in the future? And secondly, it's about the user trend in Q4, which saw slightly Q-on-Q, decline. So how should we look at the user trend for 2024?

I think that for the share buybacks, we're actively doing this in the last, especially in Q4 for 2023, and we'll continue to doing this under the currently 500 million share buyback plan that we have, and I think that we have already achieved a really good progress in it. And, so maybe Ross will talks about it.

Thank you very much. And I'd like to say the same as a trend a few years ago in Q4. And, actually, the key reason is because of the students going back to school as a school opens. Well, at the same time, we also see some impact from the short form video to our mobile end business. We are from the data analytics, we can say that regarding the loss of the user, actually, especially according to the days of the active, the majority of them leaving us are actually those low active users. Still, we maintain our highly active users, and they are quite stable. Where from the practice, we can also say that in the year of 2023, we further downsize the marketing expenses, and that is the reason we also reduced the channel promotion. And this is also another reason, and, that can respond to your question. Well, at the same time, besides the mobile end, we are also keeping our eye on some traditional channels and emerging channels, including PC end the in car channel, and IoT channel. Because regarding the operation, we would like to indeed have the omnichannel user base to be further improved. But at the same time, you can also say that regarding IoT and we still remain a very steady growth. We're for the PC end, including the Windows and the Mac system, and we're also going to maintain our stat stability there. But we're also trying to roll out new versions to continue to explore new opportunities on the PC end. But at the same time, you can also say that regarding the trend of 2024, at the very beginning of 2024, we will be impacted by the spring festival in China. So during the spring festival, people seldom use music apps. So that's the reason in Q1 of 2024, they're going to see that MAU is being slightly decreased due to the spring festival reason. We are in the following quarters as we are going to have the major, version update regarding QQ Music, and we're also going to continue to improve the performance of Kugou Music. So I do believe, compared with 2023, our marketing strategy also going to have a ROI based improvement. We're also going to pay more attention to the channel part, including the channel new user engagement and the returning of the old user back to our platform. So in the upcoming quarters, we're also going to expect the MAU improvement.

In response to your first questions, besides the share buyback, we are also, proactively looking into the dividend possibilities as well. So we'll be working on the detailed plan and then, we would like to improve the shareholders equity benefits in the future.

The next question comes from the line of, CICC. Xueqing, please.

Thanks for taking my question and also congratulations on the strong quarter. My question about AIGC. As you mentioned in the prepared remarks, Can we have been using AIGC in many aspects. So can management elaborate a bit more about that? How you leverage AI in your business and how does AI empower products contribute to the subscriber conversion and retention?

We have been closely monitored the latest development of large language models and integrated it into music recommendations and creations as well as singing and socializing. Because somewhat different from other companies, we're going to be more focused on the large language model application use case. So regarding the application use case, actually, I have third parts to share with you. First of all, we would like to leverage the large language model to make our product more appealing and more attractive to provide the user the brand new experience. So that is the reason in our latest version, we also updated listen together functionality. So the user in our QQ Music, they will be able to draw and profile their Abadas. And through this Abada, they will also be able to find the recommended music that really fit into their mood and emotions, and then they're going to consume more content. Well, at the same time, another product is actually the small patch in QQ Music, and we're also going to leverage a large language model to improve the conversation and the dialogue between the user and the pet so that I'm going to have some very interesting chats to continue to improve the sense of the companion to our users. The second point I'm going to talk about is how we can leverage large language model to improve the creation efficiency to the content. We do provide effective tools for music creation to the creators. Well, you can see that recently, we have already enabled the separation function in the Venice functions. So generally speaking, it can directly separate the vocals from the entire composition of the song, which is very popular among musicians. In addition, we also launched the AI based compensation functionalities through WeSing and business as well as Google. In other words, that user can actually create their own preferred sounds or the compositions according to their preferred style. Well, at the same time, through those function and enablement, we also find a very promising commercial prospects because user, they are actually willing to pay some of their money for those songs that has been produced with AI enabled tools. Well, regarding the customer acquisition, we can also leverage AIGC to generate a different promotional materials. We find out after allocating those materials to the market, it can also help to boost the conversion rate. Well, at the same time, we also find out after applying large language model, we will also have a very good grasp regarding the music recommendations within the app, a huge improvement compared with before. So generally speaking, we do believe AIGC is benefiting our industry and help to further improve the performance of our product. We're also going to keep an eye on the latest development, including solar and other latest technology and making sure they could also be adopted by our product as soon as possible.

And the next question comes from Thomas Chong from Jefferies.

I have a question, regarding music NetEase. Given the solid performance that we are seeing in Q4, 3.7 billion, we thought, is better than the street expectation. How should we think about, the NetEase trend coming into, Q1 2024? And over the long one, how should we think about our music subs number?

Well, you can say that, because we provided a high quality product to the market and after years of education to the user and now they are happy to pay for the service and product and the user is becoming more mature. And I think we are now stepping into the season of harvest. In the year of 2024, we're going to keep an eye on ROC and also trying to further improve end of our product and also with more marketing strategy. And we do hope those high potential customers can get access to our high quality service and product, and our very well established content library and platform will retain those users with us. So this is indeed the strategy we have for this year. In H1 of 2023, after the reopening of the pandemic, because the travel has been allowed and the offline musical event has been restored, which create a very enabling external environment for our business. Along with our very strong operational capacity and a very robust execution, we will be able to accumulate many paying users based upon the enabling turnover environment and the faster conversion rate. So in the year of 2023, actually, the net aided value for our subscription user reached 182 million and which lay a very solid foundation for us to further expand the user base in the near future. Regarding the year of 2024, we're going to finance the NetEase and other and we have every confidence we will be able to maintain the online music business and the subscription revenue at a very healthy level. Regarding the year of 2024, right after we enter into the year of 2024, benefited from our product innovation and use of privilege expansion along with our very robust execution strategy, and we offer the high quality experience to their users. Along with our operational and promoting events during the Chinese Spring Festival, we say the performance is better than what we expected. It also lay a very solid foundation for the healthy development of our business in 2024.

Well, in the near future, we're also going to keep an eye on the operation and the development of the super users, or should I call the high operating users. Those users are the key. We're going to also further expand their experience in other channels, including in car experience and the Kiwi users. We do hope by operating them and well manage them, it can also help us to overly improve the RF for the music business. But more importantly, I should also say that what we're going to prioritize is to make sure we have a steady and robust growth for subscription revenue.

Thank you. We are approaching the end of the conference call. I'll now turn over to Kar Shun for closing remarks.

Okay. Thank you everyone for joining us today. If you have any further questions, please feel free to contact TME's Investor Relations team. This concludes today's call, and the company looks forward to speaking with you again next quarter. Thank you so much, and goodbye.