Company Reports

We are upgrading Huya’s Morningstar Capital Allocation Rating to Standard from Poor following the announcement of a $150 million special dividend, or an equivalent of 15% of the company’s market capitalization. We previously wrote that the lack of distribution was the main the reason why shares were trading at significant discount to the value of its net cash. But now that the company is committed to distribute that cash, shareholders should feel more assured. Despite the recent run-up in Huya’s share price, we still see upside, as the $4.40 closing price on March 20 still implies a 23% discount to the company’s $5.70 per share net cash position.

Huya is China's largest game livestreaming platform with over 80 million monthly active users. As the market leader for years, Huya has maintained an edge over competitors on game content by signing exclusive licensing deals with esports tournaments. While this enhances user loyalty to the platform, we believe competition on licenses remains fierce, as peers will likely bid up for top events at time of renewals. In addition, we think slowing revenue growth will pressure Huya to sublicense some of its events to competitors, bridging the gap on content.

Huya is China's largest game livestreaming platform with over 80 million monthly active users. As the market leader for years, Huya has maintained an edge over competitors on game content by signing exclusive licensing deals with esports tournaments. While this enhances user loyalty to the platform, we believe competition on licenses remains fierce, as peers will likely bid up for top events at time of renewals. In addition, we think slowing revenue growth will pressure Huya to sublicense some of its events to competitors, bridging the gap on content.

Huya is China's largest game livestreaming platform with over 80 million monthly active users. As the market leader for years, Huya has maintained an edge over competitors on game content by signing exclusive licensing deals with esports tournaments. While this enhances user loyalty to the platform, we believe competition on licenses remains fierce, as peers will likely bid up for top events at time of renewals. In addition, we think slowing revenue growth will pressure Huya to sublicense some of its events to competitors, bridging the gap on content.

Huya’s third-quarter 2023 earnings exceed ours and Refinitiv's consensus expectations, but management’s 2024 guidance is largely unchanged. After fine-tuning our near-term forecasts, we maintain our $7.70 fair value estimate. We view the firm as significantly undervalued. The bulk of our valuation stems from Huya's net cash position of $5.90 per share as of the end of the quarter. The closing price of $3.69 on Nov. 15 reflects a substantial discount compared with the company’s net cash position. Nonetheless, as Huya continues to execute its share buyback program announced in August 2023, we anticipate the net cash discount to narrow gradually.

Huya reported mixed second-quarter earnings, but more important, the board finally announced a $100 million share buyback program that amounts to a whopping 16% of the firm’s market capitalization. We think management is taking the right step to improve the capital allocation decisions. With shares currently trading at just 42% of net cash, we believe the share buybacks, if executed properly, will bring significant upside to Huya's share price. We have fine-tuned our near-term forecasts, but we maintained our fair value estimate of $7.70. The bulk of Huya's value stems from its net cash position of $6.3 per share as of end-June 2023.

Although no-moat Huya’s first-quarter earnings were ahead of our and Refinitiv consensus expectations, management sounded cautious about the rest of this year. We have fine-tuned our near-term forecasts but maintain our fair value estimate of $7.70 per share. The bulk of our valuation stems from Huya's net cash position of $6.20 per share as of the end of the first quarter of 2023. The stock's closing price of $3.21 on May 16 represents nearly a 50% discount to the company's net cash position.

Despite posting fourth-quarter earnings better than our expectations, Huya's guidance for 2023 is slightly softer than our forecasts. We have fine-tuned our near-term forecasts, but maintain a fair value estimate of $7.70 for the firm. The bulk of our valuation stems from Huya's net cash position of $6.50 per share as of the end of 2022. The stock's closing price of $3.32 on March 21 represents nearly 50% discount to the company's net cash position.

We believe the latest regulatory announcement from the U.S. should help add investor confidence in Chinese ADRs. The Public Company Accounting Oversight Board in the U.S. said on Dec. 15 it had gained full access to inspect and investigate firms in China. Before this, investors feared the Holding Foreign Companies Accountable Act could force hundreds of Chinese companies listed on U.S. exchanges to delist starting as early as 2023. The news should support recent outperformance by Chinese equities following moves to relax coronavirus testing and quarantine policies in China. Although volatility may persist as COVID-19 cases increase in China, we think the combined news presents a floor in terms of risk premium to China equities. While Chinese stocks have rebounded off lows, wide- and narrow moat-rated ADRs such as NetEase, Alibaba, Yum China, and JD.com are still seeing attractive upsides to our fair value estimates.

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.

Huya is China's largest game livestreaming platform with over 80 million monthly active users. As the market leader for years, Huya has maintained an edge over competitors on game content by signing exclusive licensing deals with esports tournaments. While this enhances user loyalty to the platform, we believe competition on licenses remains fierce, as peers will likely bid up for top events at time of renewals. In addition, we think slowing revenue growth will pressure Huya to sublicense some of its events to competitors, bridging the gap on content.