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JOYY Inc. (YY US) Equity Research Summary

Core Content

This report provides an equity research update on JOYY Inc. (YY US), focusing on its financial performance, guidance, and valuation. The analysis highlights the company's recent results, market dynamics, and future outlook, particularly for its live streaming segment, with an emphasis on Bigo Live and its recovery trajectory.

Main Points

1. Recent Financial Performance

• 1Q23 Revenue: -6% YoY, 4% above consensus, driven by Bigo Live.
• 1Q23 Net Income: US$50mn, 155% above consensus, due to disciplined S&M expenses.
• Non-GAAP Net Profit Margin: 8.5% (adj. NPM), indicating strong cost control.
• Share Repurchase: YY plans to increase share repurchases to reward shareholders.

2. 2Q23E Guidance and Performance

• 2Q23E Revenue Guidance: Missed by 8%, primarily due to domestic business adjustments.
• Bigo Live Revenue: -3% QoQ, -9% YoY, partly disrupted by Ramadan in the Middle East and competition.
• Other Segments Revenue: RMB75mn in 2Q23E, -20% YoY, affected by domestic business adjustment.

3. 2H23E Recovery Outlook

• Bigo Live Recovery: Expected to stabilize and recover in 2H23E, with positive growth in Europe & North America.
• Middle East Market: Likely to recover post-Ramadan, with the segment expected to stabilize.
• Overall Recovery: The report suggests that the company's recovery in the second half of 2023 is in sight, with potential for Bigo Live to drive positive momentum.

4. Margin and Profitability Trends

• Bigo's Full-Year Margin Trend: Expected to remain stable YoY.
• Group Adjusted Net Margin: Projected at 5.8% for FY23E and 7.0% for FY24E, with continuous cost discipline.
• Operating Profit: Expected to be stable YoY, with higher interest income offsetting lower profits from other segments.

5. Earnings Forecast and Valuation

• Earnings Forecast: Slightly trimmed for FY23E–FY25E revenue due to domestic business adjustment, but earnings remain largely unchanged.
• Target Price (TP): US$46.0, unchanged from previous TP.
• Valuation Methodology: Based on SOTP (Sum of the Parts), assigning 6x FY23E P/E to Bigo Live.
• Valuation Components:
  • YY Live: Valued at US$1.9bn based on Baidu transaction.
  • Huya: Valued based on market cap.
  • Bigo Live: Valued at US$1.5bn with 6x FY23E P/E.
• Total Valuation: US$3,511mn, leading to an equity value of US$3,290mn.

6. Shareholding and Market Data

• Market Cap: US$2,000mn.
• Average 3-Month Trading Volume: US$16.82mn.
• Shareholding Structure:
  • T. Rowe Price Group: 5.74%
  • BlackRock: 4.39%
  • Vanguard: 3.36%

7. Share Performance

• 1-Month Return: -7.3% (absolute), -12.6% (relative).
• 3-Month Return: -10.2% (absolute), -20.7% (relative).
• 6-Month Return: -5.7% (absolute), -20.2% (relative).

8. Industry and Peer Comparisons

• Valuation Comps:
  • Live Streaming Sector: JOYY's P/E (14.3x) is higher than the average of the sector (11.0x).
  • Peer Comparison:
    • Hello Inc (MOMO US): P/E 5.4x, lower than JOYY.
    • Bilibili (BILI US): P/E not available, but has higher PS multiples.
    • TME (TME US): P/E 13.4x, higher than JOYY.
    • iQIYI (IQ US): P/E 13.2x, higher than JOYY.
• FY23–25 EPS CAGR: 22%, which is above the sector average of 11%.

Key Information

• Dividend Plan: JOYY has a dividend plan and share repurchase program, which supports its low valuation.
• Downside Risk: Limited downside risks from current levels due to margin improvement, low valuation, and the dividend plan.
• Analyst Rating: BUY, with a 12-month price target of US$46.0.
• Analyst Certifications: The report is certified by the research analyst, who confirms no direct or indirect compensation ties to the views expressed.
• Disclosure: CMBIGM is not a registered broker-dealer in the U.S., and the report is for informational purposes only.

Conclusion

JOYY Inc. (YY US) has shown an upbeat 1Q23 performance, with revenue and net profit exceeding expectations. While 2Q23E guidance was soft due to domestic business adjustments, the company is expected to recover in 2H23E, driven by Bigo Live's performance in Europe & North America and stabilization in the Middle East. The report maintains a BUY rating with a target price of US$46.0, based on a SOTP valuation model. The company's financials indicate a path to margin improvement and earnings stability, supported by its share repurchase program and dividend plan.