Initiating Coverage of Huya With $7.70 FVE; Shares Very Attractive, Trading at Half of Net Cash

We are initiating coverage of Huya with a no-moat rating and a $7.70 fair value estimate. The stock's Dec. 9 closing price was $3.47, representing nearly a 50% discount to the company's $6.80 net cash per share. We attribute the large discount to investor concerns about corporate governance and the protection of minority shareholders, given the large cash balance and Tencent’s control of voting rights. That said, our fair value estimate factors in all of the cash balance, as we think it is more likely than not that the cash will be available to minority shareholders. Our fair value estimate implies 120% upside to Huya's share price as of the Dec. 9 U.S. market close. We expect any announcement of dividends or a share buyback will significantly boost the share price.