HUYA Inc.

HUYA Details

HUYA Inc. (NYSE: HUYA) is a leading game live streaming platform in China, with a vast and active community of live game streamers. E-sports event organizers and major game developers and publishers work with the company, and e-sports live streaming has become one of the most popular content genres on its platform. The company has established an interactive and immersive community for China's young game fans. HUYA had 237.33 million American Depository Shares (ADS) listed and outstanding (each ADS representing one Class A ordinary share).

Q3FY21 Results:

• Growth in Revenue: In Q3FY21 (ended September 30, 2021), the company recorded a 5.71% increase in total revenue to RMB 2.98 billion, compared to RMB 2.81 billion in Q3FY20, owing to the growth of 137.01% in Advertising and other income.
• Robust Net Income: The company reported a 107.25% increase in net income to RMB 524.38 million in Q3FY21, compared to RMB 253.01 million in Q3FY20.
• Cash and Debt Position: As of September 30, 2021, the company has a cash position of RMB 11.12 billion (including short-term deposits and investments) and no outstanding debt, resulting in a healthy balance sheet.

Key Risks:

• Regulatory and Political Risk: The Chinese authorities' recent crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent the company's operations. After the passage of a bill in the US, this could lead to the delisting of some Chinese companies from the country's exchanges. This constitutes significant political and regulatory risks for the firm.
• Voting Concentration Risk: As of March 31, 2021, Tencent Holdings Limited owned 69.7% of HUYA's common stock, giving it significant control over its operations. As a result, the ability of other shareholders to influence company decisions is restricted.

Valuation Methodology: Price/Sales Per Share-based 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.

Stock Recommendation:

HUYA's share price has remained on a bearish trend, fallen 86.07% in the past twelve months and has made a new 52-week low today. We have valued the stock using the Price/sales multiple based relative valuation methodology and arrived at a target price of USD 4.60.

Considering the significant correction in the stock price in the past twelve months, robust topline and bottom-line performances, strong balance sheet, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the closing price of USD 3.66, down 15.47% as of March 11, 2022.

Three-Year Technical Price Chart (as of March 11, 2022). Source: REFINITIV, Analysis by Kalkine Group

Technical Summary Analysis

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors' appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above.

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