Before we continue, I'm referring to the State of Harvard statement in our earnings release. Students. Please note that we discuss non-IFRS measures today, which are not thoroughly sworn and reconciled to the most comparable measures reported under IFRS in readiness reviews and balance with the SEC. All participants are muted at this time. 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 Kashin.

Thank you, Millicent. Hello, everyone, and thank you for joining our call today. In the second quarter, we deliver resilience performance while navigating a compact and evolving market. Our second growth engine continued to strengthen. Revenue from marketing and consumption service achieved another quarter of solid growth as we further expanded the value of music IP through live concerts, merchandise, and other IP-driven experiences. The addition of Simalaya marks another important step in our content and platform strategy. By bringing music and audio together, we are enriching our content offering, reaching users across more listening occasions and giving them more ways to discover, enjoy and engage with great content. Our strategy is clear. We are strengthening our content ecosystem by deepening strategic partnerships, developing more proprietary IP, and extending premium content across a wider range of expenses. First, Premium content remains at the heart of this strategy, and the recent momentum we are seeing with classic catalogs is a perfect example. His variety shows and concert tours have amplified the reach of this work, making loyal fans more engaged while drawing in new generations of listeners. This has led to continuous growth in their streaming share. Second, we continue to expand our partnerships beyond traditional content licensing. Recently, we deepened our partnerships with Dream Music Group. In addition to securing digital first releases for its top artists, we expanded our collaboration into new areas, including content co-creation, physical offerings, and offline experiences. At the same time, we partnered with Hua Ce Film and TV, Wuyi Film Entertainment, and Zhejiang Satellite TV to bring original soundtracks and popular music variety shows to our platform, creating a more immersive connection between music and visual entertainment. These deeper partnerships allow us to work more closely with creators and rights holders across the whole music value chain, enabling us to create more value from premium IP. Third, another key focus is developing more high quality proprietary content. which is becoming an increasingly important differentiators for TME and giving users more reasons to engage with our platform. Examples include Zhou Shen's Blast Into Bloom, Re Lie Sheng Kai, the theme song for the 2026 Jiangsu Football City League, Liu Yuling, Browse a Little Light from Ordinary Days, 平凡的日子借一点光, Google Music's new brand anthem, and the theme song and insert song for the hit animated film All Wishes Come True, 八仙, all of which recorded strong streaming performance since their release. Fourth, Simalaya further strengthens our content advantage with its premium audiobooks and podcasts. By adding popular categories like online novels, history, kids' content, and education, we can reach users across many other more listening occasions, ultimately enhancing user time spent and engagement within our ecosystem. What really stands out is Simalaya's ability to create its own hits. Its original productions have consistently driven strong engagement and pay conversion. In fact, line of its top 10 new online local titles this year were produced in-house, underscoring both the strength and scalability of its original content capabilities. Just as importantly, owning these hits also means better economics. With the strength of our content and platform ecosystem, deep user insights, expansive services, and a strong commitment to upholding copyright protection, a growing number of artists are turning to us as we expand talent development and artist management. This is a natural extension of our ecosystem that creates value for artists we are uniquely positioned to deliver. This is exciting as it empowers us to be more entrepreneurial and innovative in bringing more premium content and IP-driven immersive music experiences to music lovers. First, take rapper Zhou Yan, Guy for instance. As his strategic partner, we have supported him across content promotion, IP development, and concert planning, helping him expand into new markets and formats and grow from arena shows to stadium concerts. Following the success of his evolution tool in Asia, we launched Will.G, the first Chinese language web stadium tool in China. More than 30,000 fans attended his opening show in Xi'an. Pia Wei, Yuan Yawei is another good example. Her Once Upon a Moon tour wrapped up with two consecutive sold-out arena shows in Hangzhou and is now reaching international markets, showcasing her rising profile and growing fan base. We are also helping artists expand into new opportunities. For renowned actor and singer Steven Zhang, Zhang Xingcheng, we produced his debut arena tour, New Journey, and his opening show in Shenzhen sold out quickly during pre-sales. Second, recently we invested in The Black Label to deepen our collaboration on a broader range of IP-related initiatives, including artist promotion and merchandise development, helping leading artists to build deeper connections with their audience in China. This strategic partnership reflects our commitment to exploring cross-border opportunities and deepening the fan-based economy. By integrating content creation, music streaming, artist development, live experiences, merchandise and fans engagement, we are able to create more value from premium IP, truly bringing the IP to life. We are already seeing encouraging results. IP related consumption services, particularly live events and artist merchandise, continue to deliver strong double digit year over year growth during the quarter. First, in live entertainment, we host three fan meetings in Macau for SM Entertainment's trainee group, SMTR25. The event attracted tens of thousands of fans and generated strong merchandise sales. TIMA, our proprietary flagship concert IP for international music awards, is becoming a larger and more influential brand in just its second year. Building on last year's success, we scaled up the venue to Kai Tak Sports Stadium in Hong Kong, including audience capacity by more than three folds, capturing music lovers' growing enthusiasm. Second, artist merchandise also continue to gain momentum. By bringing together our capabilities in IP development, product design, merchandising, and distribution, we are creating more meaningful connections between artists and their fans. During the quarter, we produced Zhou Shen's physical albums in both CD and vinyl formats, complemented by a range of collectibles, merchandise that generated strong fan demand. Physical album releases from Cai Xu Kun, Chen Chusheng, and Pu Yixing also delivered impressive results. Protecting copyright is fundamental to preserving the long-term value of premium IP. During the quarter, we continue to strengthen our copyright protection efforts through proactive screening and takedown, legal action, and closer collaboration across the industry. As AI continues to evolve, we are stepping up our engagement with regulators, music labels, artists, and other industry partners to strengthen copyright protection in the new era. By working together across the industry, we believe we can foster a healthier environment for creators, reinforce the long-term value of premium IP, and support the sustainable development of the music industry. We remain committed to providing a safe and enjoyable music experience for users of all ages. During the second quarter, with comprehensive upgrades to use both across our core products, we created a dedicated library of age-appropriate music, helping younger users discover and enjoy music in a safer and more trusted environment. To conclude, while challenges remain, we believe we are still in the early innings of unlocking the full potential of premium IP. We are excited about the opportunities ahead and remain confident in our ability to deliver sustainable long-term growth. With that, I will turn the call over to Ross.

Thank you, Kar Shun. Hello, everyone. While the competitive landscape continues to evolve, our commitment has not changed, delivering the best music and audio experiences for our users. Every user listens differently. That's why we continue to innovate our products, broaden our users' reach, and enrich our membership offerings. In the second quarter, our focus on user experience translated into stronger engagement with average daily time spent continue to improve, supporting standing growth in membership revenue. Product innovation remains at the heart of everything we do to serve our users. This quarter, we created a more seamless discovery to playback journey through improvements in content discovery and audio quality. In his content discovery features, such as swipe tabs and video feeds, help users explore more relevant content in a more engaging way. Newly introduced 3D Nika, 3D in audio also allowed premium users to experience premium sound quality from their very first listen. Thoughtful application of AI also made music discovery more intuitive and personalized. We upgraded our AI agents across QQ Music and Google, enabling them to better understand nuanced user intents. Acting as personal DJs, these AI agents can now instantly create personalized playlists tailored to users' listening needs in the moment. Together, these improvements help users discover more content, boost their time spent on our platform, and increase the share of recommendation-driven streams. We are delivering great services as a foundation. Reaching more users is equally important. That's why we are continuing to deepen our integration with the Tencent ecosystem to expand our presence across more user touchpoints. First, we depend on our cooperation with vision video accounts by bringing leading labels, top artists, and independent musicians into its ecosystem. We are creating a more seamless journey from music discovery to full track listing on TME. Collaborations with Weixin Pei also helped our lightweight products, such as Bodian Music and Kugoo Concept, attract users looking for simple music experience and deepen their engagement. Furthermore, we recently integrated with Weixin's AI agent, Xiao Wei. We are pleased that by typing into Weixin's massive user base, More users can now discover songs, generate playlists, stream music with easy commands, and instantly share favorite tracks with friends. Together, these initiatives are expanding our user reach, improving conversion and engagement, as well as enhancing content distribution across the Tencent ecosystem. Second, we are also extending our user reach beyond mobile and the PC into cross-device listening scenarios. During the quarter, we broaden our smart vehicle coverage through deeper collaborations with leading automakers, including Chang An, Li Auto, and Xiaopeng, and introduced the LMPOD search to deliver a smarter in-car experience. We are also among the first music platform to integrate with Harmony OS expanding our reach within its fast-growing ecosystem. Such a move has transferred our presence among Harmony OS users and positioned us to capture new opportunities for further monetization. We are excited to welcome Shimalaya to the TME family. Music and audio naturally complement each other. They broaden our content offering and create more listening occasions throughout the day. This helps strengthen our position as a comprehensive music and audio platform. We are still in the early stages of unlocking the full potential of this combination and we are seeing significant opportunities ahead. By bringing together our complementary strengths, we can deliver compelling content to a much broader audience. We are starting to enrich our SYP offering with premium audio content to create richer listening experiences. Over time, we also see opportunities to strengthen our advertising business and improve efficiency, leveraging our shared technology and infrastructure. We believe these efforts will create lasting value for our users, creators, partners, and shareholders. Finally, we are further elevating the SIP value proposition by transforming it into multi-dimensional experience centered on IP engagement. Premium music remains at its core, now complemented by premium audio and a growing portfolio of IP-driven member benefits. This quarter, digital albums and the tailored SYIP package continue to drive stronger member adoption and user engagement. Packages for Ren Jun, Huang Ren Jun, Lei Zhang, Zhang Yixing, aespa, and RISE feature the popular member benefits such as photo cards and NFC cards. We also expanded our Starlight Card line-up by adding artists from the Black Label, including Taiyang, Somi, Mewo, and All Day Project. Meanwhile, collaborations with popular gaming IPs such as Rising Waves, Mingchao, and Light and Night, Guangyu Yezhi Dian, brought new themed decorations to SYIP users, generating stronger user engagement and conversion. Together, these offerings contribute to health growth in our SYP user base, LRPU, time spent, retention, as well as consumption of other premium, unsolidary experiences. They reinforce our value proposition of one membership, richer experiences. To conclude, our journey reflects how we have evolved from a gateway for content into a strategic platform that actively shaped the music and audio entertainment landscape. Our focus remains steadfast, creating deeper and more meaningful connections between creators, content, and audiences. We are uniquely positioned and confident that we can translate these deep connections into long-term sustainable value across music and audio. With that, I would like to turn the call over to Shirley, our CFO, for a deep dive into our financials.

Thank you, Ross, and greetings, everyone. Let me now turn to our financial results. Amid an evolving competitive industrial landscape, we delivered steady financial results in the second quarter of 2026, with 6% year-on-year revenue growth. Total revenues were on the 8.9 billion, up by 6% year-on-year, primarily driven by strong growth in revenues from music-related services. The consolidation of Ximalaya contributed approximately RMB 0.4 billion to our overall revenues in the second quarter of 2016. Revenues from music-related services grew 11% year-on-year, driven by solid growth in revenues from membership services and offline performance-related services. revenues from membership services were only 4.8 billion, up by 8% year-on-year. In the second quarter of 2026, our SYIP membership program continues to expand. Our diversified SYIP privileges, such as artist membership sales, photo cards, and spotlight cards, continued to drive SYIP user adoption and revenue growth. This quarter, we collaborated with our SYIP ambassadors to offer special packages and improve our SYIP platform. The consolidation of Simalaya also contributed to revenue growth in membership services. We think marketing and consumption services, offline performance-related services deliver robust results as we successfully staged several concerts for our strategically collaborative artists, including Silence One and the same feature. Sales of digital albums also achieved solid performance, primarily driven by the launch of Jay Chow's album, Charging of the Sun, We continue to prioritize our IP-related offerings and build deeper collaborations with spiritual artists across music promotion, offline performances, artist merchandise, and digital albums. In a challenging micro-environment and a competitive market, Our advertising business, especially the AD-supported model, are experiencing some headwinds. We continue to take actions to improve ad exposure, enhance entry rate and eCPM, and offer more engaging, interactive products for users. We are also deepening collaboration with the Tencent ecosystem to reach more users. The consolidation of Simalaya contributed to revenue growth in advertising positively and we see growth potential in this era through leveraging our expanded contents and shared resources and technologies. Our growth margin in Q2, 2026 was 44.2% compared with 44.4% in the same period of last year. Grammar Mix impacts our growth margin. Offline performance related services continue to grow. We are happy to see continued cost efficiency improvement for offline performance related services. The consolidation of Simalaya after considering the amortization of intangible assets recorded on the purchase accounting had an favorable impact on our growth margin this quarter. We are confident that our growth margin will remain competitive in the industry over time. Moving on to operating expenses, they amounted to only 1.3 billion. We presented 14.5% of our total revenue in 2016, compared with 13.7% in the same period of last year. This quarter, we adjusted our channel spending strategies by reducing channel spending and depending collaborations with Tencent ecosystem. For example, we strengthened our cooperation with Weixin Weibo account for content distribution and user conversation and collaborated with Weixin Xiaowei to drive traffic to our lightweight IPs. Solidation of Cimalaya, including the amortization of intangible assets recorded on the purchase accounting, drive the increase in operating expenses. Going forward, we expect to dynamically adjust our channel spending strategies for all our buildings, according to devolving market conditions with our requirements. Our net profit distributed to equity holders was only 2.5 billion, Compared with only 2.4 billion in the same period of 2025, dilute the earnings per ADS is quoted for only 1.57. For Q2 2026, our adjusted EBITDA was only 3.3 billion, up by 5% year-on-year. Otherwise, net profit attributable to equity holders of the company was only 2.7 billion, up by 4% year-on-year. As of June 30, 2026, our combined balance of cash credits from deposit at short-term investments was RMB 44.2 billion, as compared to RMB 41 billion as of March 31, 2026. This combined balance was effected by changes in exchange rate of RMB to USD at different balance sheet dates. In addition to our strong operating cash flow, we maintain diversified finance options to meet our strategic expenditure requirements. Under the Share Repurchase Program announced in March 2025, we have repurchased $43.5 million from the open market for a total cash consideration of US$400 million in the second quarter of 2026. As part of our long-term commitment to shareholding returns, we remain on track to complete the 2025 Swap Repurchase Program on time. Looking ahead, we'll continue to focus on the development of SYIP membership, creating more innovative products and providing more diversified benefits and privileges to our users. We also keep investing in quality content and IP development to build a comprehensive content ecosystem. Additionally, we continue to deepen collaboration with Tencent ecosystem. The combination of Sima Maya brings exciting opportunities for us as our comprehensive music and audio platform. All these factors pave the way for long-term health growth of our business. This concludes our prepared remarks. We are now ready to open the call for questions.

Hi, thanks for this opportunity for asking questions. Congratulations on very strong results. So my question is, there are two questions. So the first question is on IP related business. So IP has been a key driver for our revenue in the first half of 2096. And I was wondering how will the IP related business drive the revenue growth for the rest of this year and how's the momentum and outlook looks like there. And the second question is really on Simalaya consolidation. So now that Simalaya is already part of the TME group, how should we think about the financial outlook after Simalaya's consolidations and its impact to the TME financials in the second half of this year? Thank you.

I have two questions. The first one is about the IP industry. We can see that in the first half of this year, the IP industry is also a driving force for our entire business growth. I would like to know what the trend of the IP industry will be like in the second half of this year. Can you give us an overview of the future? The second question is about Himalaya. We also know that Himalaya has now fully integrated into the Group of Music Entertainment Group. Can you tell us about the future financial prospects of Himalaya, including the overall image of the entire music industry?

Thank you for your question, Alex. The first question is about the development of our IP. Currently, due to the achievement of our overall performance in the second quarter, we are making a very steady growth. And currently, due to our relatively progressive layout over the years, So we have now built a more decentralized back-to-back platform with online and offline content, as well as a complete music ecosystem of virtual and physical. So in this situation, we can better reflect the diversification of our IP. And in this process, we bring more services, especially marketing and consumer services, so that our overall income can grow rapidly in the past few months and several seasons.

Well, about your first question, it's about IP-related business. As you can see that we have achieved a solid growth in our Q2 results. That is mainly due to our many years of deployment of forward-looking strategies. We have already built a differentiated platform that features content plus platform that combines both offline, online services and products. also combines virtual and non-virtual products so this is a complete music ecosystem and that also can fully leverage the diversified IPs which you can see also that we have a lot of contribution from marketing and consumption related services and all of this have contributed a lot to this quarter's result.

Although this year's competitive environment has brought some pressure to our membership and advertising business, but like what I just mentioned, like the consumer service related to IP such as concerts, based on our current advantage, we think we can still continue to bring a stable growth to our business. This is mainly due to the following different levels. The first one is the ecological attack related to IP. In addition to the internal development of our organization, we will also work closely with external partners so that we can produce more high-quality IPs in the overall IP creation. The second dimension, we also see the overall, because we are through the deep cooperation of content, and then to the announcement of content and extension products, etc. The whole process of a grasp, this is also a relevant advantage of TME. The last level is that we have a diversified transformation scene. So we can use the platform's ability to not only promote the value of our IP to concerts, products, and so on. This also helps us to have more special rights and anti-corruption to our SUIP members' monthly business. So the value of these multiple scenarios has also become a very solid support for us.

For this year's competition, we do see some headwinds from the competitive area, be it in the membership and ads business. But our IP-related services, including concerts and performance, are experiencing steady growth, mainly because of the following reasons. Number one is our IP supply. Apart from our in-house research and development, we're also carrying out a lot of deep collaboration with external suppliers, which help us build high-quality IPs across the board. Second, you can also see that in terms of content collaboration, apart from that, promotion, distribution, and merchandise, the derivative products were also in a very good position. Number three is the diversified monetization. Through our platform, it would not only provide performance, concerts, or merchandise, and through our member benefits, it could also contribute more to the increase of our SBIP numbers. And all of this have helped us build a very solid competitive note.

Regarding your second question about the Himalayas, we are also very happy that after the Himalayas joined TME, we can let the entire TME Group achieve a strategic upgrade of a music and audio service platform. So this also expands our user group and enriches the image of our users. This also further improves the user's taste and loyalty. So it integrates the Himalayan, plus the unique advantage of our platform content just now. We think it can release a better motivation for the development of the entire group's loyalty. It has set a better foundation for our future growth.

About your second question on Cimalaya, we are very pleased to have Cimalaya to be part of TME family. And with Cimalaya on board, we have already built a one-stop music plus audio platform, which help us amplify the user base and also enrich the user profile and also increase time spent on our platform. So overall, in the medium to long run, we can see that Ximena's joining to TME family will also unlock more potential of future growth. And this has also set a solid base for future growth.

Thank you. And then this question comes from Lincoln Kong from Goldman Sachs, Lincoln, please.

Thank you, management, for taking my question. My question is about the subscription business. So basically in the first half or the second quarter, if we're excluding Himalaya, we do see some moderation in subscription revenue growth. So how should we think about the prospects into the second half of the year? What's the growth trend for SVIP or the overall output to contribute to the overall growth? And could you also elaborate a bit more on the latest status in terms of the competition, especially against Soda? Thank you.

My question is about our subscription business. In fact, if you look at the second quarter of this year, you can see that the subscription business is actually in full swing. So can the management team look forward to the whole prospect of next year, including the trend of SVIP and Harpo? In addition, can you tell us about the current competition in the music industry, especially the competition between Qishui?

Well, with the competition in hand, we can see that the growth in music business is slowing down.

Well, it's mainly some impact on traffic, but as we said, the most important thing is our collaboration with WeChat Video App.

So we are very excited to see that TME has started to take full responsibility for the operation of music in WeChat Video App. At the same time, we can see that the connection from the video number to our entire app, from Qo to Qo Music, has basically been opened.

We're also very pleased to see that TME is already taking charge of the music business operation under WeChat, a WeChat video account. And the connection between WeChat video account and QQ app has already been very smooth.

From the actual sales performance, we can see that the most important high-end users and high-quality users of SYP have not been affected much. The main impact is on the light users.

Well, if you look at revenue-wise, our high-value users or SVIP has not been heavily affected. What has been most heavily affected is for those casual and light users.

So, in terms of the operating of the subscription users, we are still stabilizing our current SVIP basic disk, and at the same time, we are putting more rights into our SVIP rights package to improve its scale and up.

So if you look at our subscribers, we've got to stabilize our SVIP base and try to put more benefits into the SVIP package to increase its total number of base.

So this contains what Kar Shun mentioned earlier, our周边衍生品, 然后演唱会,以及我们在喜马拉雅收购进来以后,我们能够提供更有价值的长音频的内容。

This includes, like Kar Shun said, merchandise, performance, concerts, and with Ximalaya, we can also provide more high-value, long-form audios.

So compared to other products, our core music industry can maintain a strong difference and healthy growth.

Compared with our peers, our core music business is still having a solid and healthy growth Well, to acquire more light users, we're also tapping the potential from those light and small apps, especially like ODEON Music, Kugoo Concept, and the Kugoo free version, which we released at this quarter.

So basically, we believe that in our current close cooperation with Music Entertainment Group, as well as our own steady hand, steady our big plate, and then go deep into digging for our high-value users, we believe we can have our own side to be able to face such a competitive environment more actively.

We believe through our collaboration, a deeper collaboration with Waston Video Account by stabilizing our main business and tapping more potential from high value users, I believe we can stay in a very good position against the competition.

From the perspective of competition, we are actually looking at, first of all, for TME, we have been facing, for so many years, we have been facing the existence of the competitive environment. So the most important thing for us is to do our best.

In terms of competition, TME has never been absent from competition over the years. So the most important thing for us is to do our own job well.

So compared to other products, as we mentioned earlier, we have completed the transition from the music industry to the music and audio service platform.

Compared with our peers with the consolidation of Himalaya, we've already finished our transition from a music platform to a music plus audio comprehensive service platform.

So in the future, in fact, on the TME platform, we can provide more diverse channels than other competitors, and we have more rights online and offline.

Compared with our peers in the future on TME platform, we can provide more enriching content, more channels, and also more benefits that cover both online and offline. No matter what happens in competition, we will stay firm on our own track of development. And we also believe that our business will continue to have a stable and steady development.

Thank you. And the next question comes from Alice Liao from JV Morgan. Alice, please.

Thank you management for taking my question, especially thank you for playing such a soothing music ahead of the conference call. I really enjoy listening and also all the best to the business transition. My question is about the integration and synergy with the Weixin Xiaowei, the Weixin agent services. You guys highlighted the Weixin Xiaowei integration and upgraded AI agents acting as a personal DJs in QQ Music and Google. What measurable changes have these products produced in discovery, listening time, retention, or conversion? And what is the intended monetization path? Does management primarily view AI as an engagement and cost efficiency tool, or can AI become a direct revenue contributor? Thank you.

Thank you, Mr. Guang. Thank you very much, Mr. Guang, for playing some very nice music before the meeting. My question is about WeChat Xiaobei and AI Agents. Recently, AI Agents has been upgraded to be a personal DJ in the music industry. I want to ask if these, including WeChat Xiaobei and AI Agents, have any practical, for example, We have increased the flow rate, the conversion rate, and the market share of the users. What do you think about the specific path of transformation? As for the AI technology, should we treat it as a base or a tool for cost management, or can it be a real income contribution?

Well, first of all, we think Xiaowei is still under testing. I would take it as a very important skill. So from their early testing, we can also see that from the user to create their own song list and then to share their own song, it has become a more commonly used application among WeChat assistants.

Well, though it's still at an early testing stage, we're very happy to see that users are using it to set their own song list, share songs, and they're using it very frequently.

Well, with our app internal upgrading, especially with the integration of the HY3 and plus our music AI agent, we can tell that it does increase the retention, especially for the high value users. In recent years, we have released two important functions in the recent version of our Mac. One is a songwriter, and the other is an AI DJ. An AI-accompanied radio on the Mac can fully represent the participation of users in the Mac office.

Well, recently, you can also try some new features on a mic version, especially two new features. One is you can swipe to listen to music, and second is the AI DJ. Basically, you can use it as like a companion DJ station.

Our algorithm has been able to promote our recommended participation very well. Our latest algorithm has also been adopted by such a top-level meeting.

And with our latest algorithm, the GPD model, we can see that it also increased the engagement of recommendation and our recommendation has also been adopted by one of the top tier conferences. Well, about the monetization on AI agent, I think the business model is very clear and it will use that to increase the engagement and activity of our users. So they will use it more often to share and listen to songs, especially for those paid users that will further drive the growth of subscription.

As for the overall AI technology part, we have already talked about it in the previous few episodes. Of course, for other companies, it is a more standard use of AI tools to promote education and improve skills.

About AI technology in general, we talked about this topic in a previous orders call as well. Well, AI itself compared with others in nature is also a tool to improve efficiency and cut costs.

But we especially want to mention that our special place is mainly for AI users on the consumer side to use large models to produce music. So after two years of development, our two parts, this part of the business, for example, in Kugoo's AIK and AI songs in Queue Music, have achieved and so on. So our core goal is to use AI technology to help us find better opportunities to improve our own income.

However, what is so special about us is on the consumer side, we can use AI, especially large language models, to generate music. And over the past couple of years, we've already used that in our app, like Google AIK and QQs, also using AI to generate songs. and all of these have also generated very good commercial returns. We hope that we can use AI technologies to tap more commercial opportunities and increase our revenue.

Thank you. And then this question comes from Citigroup. Alicia, please.

Hello. Yeah. Can you hear me?

Yes, we can.

OK. Hello. Thank you, Manager Chen. Good evening. Thank you for accepting my question. I would like to ask you about the positive and negative aspects of TME in terms of music and audiovisual products. I wonder if management can share your insight on what is the competitive advantage and competitive mode of TME on the music and also the long-form audio IP and also the overall IP strategy. Thank you.

Well, first of all, about exclusive content,

are not in a good position to talk about competitive mode because according to SAMR's rules, we cannot use those exclusively on content.

However, compared with our peers, our competitive advantage is quite clear.

First of all, a Himalaya stew has a lot of user legacy that covers white collar and female users in tier one and tier two states.

So basically, you can notice that in our entire child business, the child business in Himalaya itself still holds a very important position in the market. And many of its story IPs have formed a very good cooperation with us.

As you probably can see, our kids business on Ximalai is still taking considerable market share and especially the story part has also compliment with our own business.

And then the second part is actually the whole network literature part. Because novels are still like Spotify's audio book. Network novels are definitely the most important part of us. In this part, we mainly continue to work with Music Entertainment Group to achieve a good deep strategic cooperation with Music Entertainment Group. All of its works can be completed on our own platform as soon as possible.

Another part is the internet literature, especially the novels, like audiobooks, will continue to deepen our collaboration with China literature, Yuelun, and all the new works will turn into audiobooks and will be efficiently distributed on our platform.

Recently, we're also partnering with China Literature Ye Wen on comedies or comic plays, and we also believe that comic plays and audios can also complement with each other. The third one is actually a deep collaboration with Tencent Video itself. We believe that it is a long video platform. For example, the latest film of the head of Baihua Sha, including the human world, as long as it is relatively popular on Tencent Video, it is the same. We also found that it has a very large growth in consumer consumption.

In addition, we also have a deep collaboration with Tencent Video for some long form videos like by Hua Sha or Ren Jian, those hit shows. So once we found those hit shows, Tencent Video, especially those ass plays, we also spot there is a great consumption scenarios on Cimalaya.

So we are also recently promoting cooperation with Tenggyu Video on the product, which is what I just said. All the live shows of all the hot dramas can be online on our side and complete the tour from Tenggyu Video at the same time. So all the valuable live content in our side of Himalaya will also be authorized to Tenggyu Video at the same time, so that their users over there can also get a satisfaction of a demand on listening to books.

So with the Tencent Video, for those hit shows, we can turn those into audio books very quickly and turn it online. And we can also have some traffic diverted from Tencent Video. And for the audio resources on the Himalaya platform, we will also license it to Tencent Video so that Tencent Video users can also listen to this audio content.

So in a nutshell, our long-term products are still IP-centric. We can focus on the most classic children's stories, and use Cantonese as the core of online literature, and combine it with S-level film and television, to create a better commercial opportunity.

In a nutshell, long-form audio is still IP-centric business and will keep a focus on classic kids' stories, the internet literature from China Literature, Yuwen, and the S-level shows from Tencent Video. We believe all of this will have very good commercial outlook.

As for the production of music content, TM has also made many years of professional development.

About music creation, TME has also deployed many forward-looking strategies. Apart from our collaboration with domestic and international labels, we co-produced a lot of artworks. We also set up some joint ventures and we also spent lots of efforts in in-house studio in music creation.

Another important thing is that we have to have more close cooperation with Tencent's big ecosystem. Currently, there are many different theme songs in Tencent games, Tencent videos, and OSTs. In the past, we have created a lot of different, very brilliant head-on songs.

In addition, we will also continue to forge a closer collaboration within the Tencent ecosystem with gaming, with Tencent Video, and over the years we have generated many hit songs.

In the past few years, we have achieved our own artist management. We have a lot of famous singers in the industry who have joined our camp. But at the same time, we have also started to train some new artist singers with many overseas companies, such as SM Entertainment in Korea. This is also where we invest more energy and resources when it comes to creating singers.

Far from music creation, we're also entering deeper into artist or singer generation or nurturing. and Artist Management. For example, we partner with SF Entertainment from Korea so that it could help us better nurture more talented artists.

Finally, we can use these great songs and singers to help them organize their individual concerts through different venues. We also have TME's own internal IP events and so on. We can also create different content for the performances. In the end, we hope to create a long-term IP with a unified whole. And this is high-quality. And in the past few years, the growth of our business in this area has proven that there is still a lot of room for development.

So with song creation and singer nurturing, we can also help a lot of singers to make their own concerts and we can also organize a lot of the IP based events and all of this will further contribute to the business growth. So with our integrated or one-stop platform, we will further nurture more high quality IP. And if you look at our business performance over the past several years, Seth Rapid Growth is already a proven record of the huge potential of this business.

Ultimately, with more benefits, it will further contribute to the growth of our subscription or SVIP growth.

Thank you. I think this question comes from Maggie from CIC.

Thanks, management, for taking my question. My first question is related to margin. In the second quarter, sales and marketing increase appeared to be quite modest year over year, even taking into consideration of Himalaya, which was believed to entail higher sales and marketing cost ratio. So could management help us better understand the driver behind that? And what's the overall gross margin and net margin outlook in the third quarter and fourth quarter upon a full quarter consolidation of Himalaya? My second question is related to shareholder return. So our total cash short-term, long-term deposit reached 44 billion RMB, and by the end of second quarter, it's almost 40% of our current market cap. Can management share with us your latest thoughts on enhancing shareholder return going forward?

Thank you.

Thank you for giving me this opportunity. The first question is about the whole profit and loss situation. In the second quarter, we can see that the sales revenue has actually increased quite a lot. In fact, considering the co-operation of CIMA, can you tell us what is the main driving force behind this? Let's take a look at the situation in the next few years, including net profit and net profit. The second question is about the return on the stock market. We can see that by the end of the second quarter, the cash flow on the account has reached 4.4 billion yuan, which is about 40% of our market value. So I would like to ask Mr. Guan about the current plan for the return on the stock market.

Yes, the main reason why our net profit has been slightly reduced is mainly because the income from offline activities has grown faster, so the total income ratio is larger. On the other hand, the economic activity in offline activities has also grown faster, so the ratio has also increased. At the same time, the experience of the concert and the actual fans has also increased the efficiency of the operation, which still has a positive impact on the overall efficiency. So, in total, the same ratio of efficiency is relatively low.

Well, first question about the slight decline of our GP margin is mainly due to the following reasons. Number one is our offline business is growing very rapidly, which means that it takes a bigger share of our total revenue. and plus our offline artist brokerage business is also growing directly and also taking a bigger share of our overall revenue and plus concerts and live performance which also contribute positively to our GDP margin and these are why our GDP margin is just declining slightly.

In contrast, the decline in net profit is purely due to the seasonal activity of the offline activity. Q2 is significantly higher than Q1, which has a certain negative impact on net profit.

Well, if you look at quarter over quarter, the slight decline of JP Morgan is mostly the seasonal changes of the offline performance business, because the offline performance business in Q2 is greatly higher than Q1. Considering the amortization of intangible assets of Himalaya, it has some positive impact over our G2 project.

In the long term, after the merger of Himalaya, we will continue to integrate music and audio, enrich the entire content ecosystem, integrate the user structure of participation, and improve the flow and payment transformation of SYP. We believe that there is a certain room for improvement for the overall profit.

In the long run, with the consolidation of Himalaya, we will continue to build our music plus audio platform, and to have a more enriching ecosystem, and to provide a more differentiated user experience. And with that, we believe we can increase the retention conversion rate.

According to the forecast for the next half of the year, we expect the overall interest rate to drop slightly from the same level as last year.

Our projection into the second half of our revenue expectation, we project that our GP margin will be decreasing slightly year over year.

I'd like to talk about the sales fee issue. In terms of Q2, we have relatively controlled the investment of the sales fee. Overall, we have adjusted the strategy of the entire channel fee. We have a higher requirement of ROI for the channel fee. We have reduced the channel fee. At the same time, we have strengthened the cooperation with Tencent's entire ecosystem, including the video number, WeChat payment, and gaming. The cooperation with the video number has gradually achieved some results, and the efficiency has been improved.

About sales expenses, I would say in Q2, we have controlled the sales expenses because in general, we have changed our channel expenses strategy, which means that we will seek more projects with higher ROI. And in addition, we're also strengthening our collaboration within the Tencent ecosystem, Tencent Video, Tencent Pay, and Tencent Gaming. And as you can see in our collaboration with Tencent Video, it has already helped us increase the traffic and conversion.

After the merger with XIMA, XIMA almost stopped in June. Then we gradually adapted the ability of the Group to XIMA, and formed a more advanced investment model. From July, we will gradually restore investment under the same requirements as the Group.

Well, with the consolidation of Himalaya, basically the input in June has already suspended. But with the technology and platform convergence, we have resumed the expanding for Himalaya, but with the same ROI standard since July.

Yes, we will not make a big deal. We will continue to invest in high-quality content and detailed promotion strategies. We will focus on core value users and ecological advantages, and protect the basic brand of paid users. It is expected that sales costs and GNP will increase reasonably throughout the year. Mainly, it will include a lot of expenses. The operating fee has been slightly increased by 2.5 million yuan. We will not just spend broadly in marketing and we'll fine-tune our strategy in marketing and to do more targeted and stay focused on our ecosystem and to

to try to tap more value from our users. So for the whole year, our sales expenses will go up a little bit and our operating expenses will slightly go up. But considering the loans, our net margin for the whole year will go down slightly and EBITDA will go up, will edge up a little bit.

About shareholder return, currently we're still under that $1 billion shareholder return program. In Q2 alone, we've already completed $400 million USD share buyback. 管理层当前是对整个公司的长期加持是非常有信心的。 So we will also be actively preparing a new round of return plan in addition to completing the return plan of the remaining stocks. Our goal is to improve the return of shareholders in different modes as our goal.

The management is very confident in the long-term future of the company. So apart from finishing the rest of the previous share buyback program, we're also preparing for another round of share buyback. We'll look at a new different approach to increase share buyback.

Thank you. And in the interest of time, I would like to wrap up today's call. And thank you again for joining us today. If you have any further questions, please feel free to put them in the chat.