Fulgent Genetics, Inc.

FLGT Details

Fulgent Genetics, Inc. (NASDAQ: FLGT) is a technology-based company that provides genetic testing solutions for oncology, infectious and rare diseases, and reproductive health. FGLT combines next-generation sequencing (NGS) with its technological platform to provide comprehensive gene sequencing with deletion/duplication analysis in single-gene testing to fulfil client-specific requests. It currently generates revenue by offering COVID-19 and other genetic testing services. As of August 19, 2021, the company's market capitalization stood at USD 2.58 billion.

Geographical and Market Expansion through Acquisition: On August 09, 2021, FLGT acquired CSI Laboratories, a cancer testing laboratory in Alpharetta, Georgia. This acquisition will enable FLGT to expand into the somatic genetic testing market, which could reach USD 16.8 billion by FY30. In addition, FLGT will derive synergies from augmenting its molecular diagnostics and oncologic testing capabilities to create a state-of-the-art, comprehensive cancer testing solution for customers beyond the southeastern part of the US.

Strategic Collaboration: Also on August 09, 2021, FLGT announced a partnership with Helio Health, an AI-biotechnology company commercializing blood-based early cancer detection tests. FGLT's investment in Helio is in conjunction with securing exclusive commercial rights for laboratory-developed tests (LDTs) in the US and Canada. Under the agreement, both companies will commercialize HelioLiver, a cell-free DNA (cfDNA) blood test for liver cancer which is currently under trial in the US and China and is expected to launch by FY21.

Q2FY21 Results: The company's revenues increased 7.90x to USD 153.62 million in Q2FY21 (ended June 30, 2021) compared to USD 17.27 million in Q2FY20. The surge in topline can be attributable to 7.61x growth in billable test deliveries of 1.56 million in Q2FY21 vs. 0.18 million in Q2FY20. Net income increased 23.03x to USD 79.81 million in Q2FY21 vs USD 3.32 million in Q2FY20. As of June 30, 2021, the company stood with cash and cash equivalents (including short-term investments) of USD 383.79 million, with total debt of USD 20.98 million.

Key Risks: In Q2FY21, FLGT's top two largest customers accounted for 20% and 16% of its total revenue, respectively. Hence, the loss of any of these key customers could hurt its financials in the long run.

Outlook: In Q3FY21, FLGT expects to generate total revenue in the range of USD 125 – 150 million, thus realizing YoY growth of 35% at the mid-point. For FY21, the estimated revenue amounts to ~USD 800 million, representing YoY growth of 90%. FY21 EPS is expected to be USD 12.00 and USD 12.50 on GAAP and non-GAAP basis, respectively.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

 (Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

FLGT Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: FLGT's stock price increased 7.06% in the past month and is currently close to the lower-band of the 52-week range of USD 26.03 to USD 189.89. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 44.08. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 95.03. Considering the slight uptick in the stock price, a surge in the top and bottom line, strong balance sheet, recent acquisitions and collaborations, and current valuation, we recommend a "Hold" rating on the stock at the closing price of USD 87.54, up 0.19% as of August 19, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV. 

HUYA Inc.

HUYA Details

HUYA Inc. (NYSE: HUYA) is a major game live streaming platform in China, with a vast and active community of live game streamers. Through close coordination with e-sports tournament and gaming event planners, prominent game creators, and licensors, HUYA creates e-sports live streaming, one of the most popular content genres on its platform. It also provides non-game entertainment content such as talent shows, anime, outdoor activities, live chats, and online theatre, in addition to extensive content in the gaming and e-sports categories. The majority of HUYA's revenue comes from selling virtual items on live streaming platforms and other advertising and online gaming services. As of August 19, 2021, the company's market capitalization stood at USD 2.27 billion, with 237.10 million American Depository Shares (ADS) listed and outstanding (each ADS representing one Class A ordinary share).

Termination of Merger Agreement with DouYu: On July 12, 2021, China's State Administration for Market Regulation (SAMR) decided to ban HUYA’s proposed merger with DouYu International Holdings Limited, China's another leading supplier of game-centric live streaming platforms, following an antitrust review. As a result, the merger agreement was cancelled immediately.

6MFY21 Results: The company reported an 8.96% rise in total net revenue to RMB 5.57 billion during 6MFY21 (ended June 30, 2021) compared to RMB 5.11 billion during 6MFY20, primarily driven by the increase in the overseas live streaming revenues. However, HUYA recorded a decrease in net income to RMB 371.79 million during 6MFY21 vs. RMB 377.98 million during 6MFY20. As of June 30, 2021, its cash and cash equivalents (including short-term deposits and investments) were RMB 10.74 billion, with no outstanding debt.

Key Risks: The Chinese authorities' recent crackdown on its US-listed businesses and the consequential possibility of tougher rules could dent the company's operations. This is after the passage of a bill in the US that could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities are unable to satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm. Further, Tencent Holdings Limited held 69.7% of the total voting power in the company as of March 31, 2021. As a result, the minority shareholders' capacity to influence corporate affairs may be limited due to ownership and voting power concentration.

Valuation Methodology: Price/Earnings per share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

HUYA Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: HUYA's share price fell 67.78% in the past six months and is currently leaning towards the lower end of the 52-week range of USD 8.81 to USD 36.33. The stock is currently trading far below its 50 and 200 DMA levels, and its RSI Index is at 22.97. We have valued the stock using the Price/Earnings multiple-based relative valuation methodology and arrived at a target price of USD 11.73. Considering the significant correction in the stock price, the company’s strong balance sheet, increasing demand for online streaming platforms, China's crackdown, and other associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 9.55, down 0.52% as of August 19, 2021.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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