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HUYA (HUYA US) Summary

Core Content

This document is an equity research update on HUYA (HUYA US) from CMB International Global Markets, providing an outlook on the company's financial performance, key drivers, and investment ratings.

Main Points

• Financial Performance in 2Q22E:

  • Revenue is expected to decline by 23% YoY to RMB2.3bn.
  • Adjusted net profit is forecasted at -RMB49mn, indicating a net loss.
  • Live streaming revenue is projected to drop 20% YoY, below previous guidance of -17% YoY, due to reduced paying users and flat ARPPU.
  • Revenue from ads and others is expected to fall 44% YoY, in line with previous guidance, due to the lack of esports tournaments and weak gaming ads.
  • Gross profit margin (GPM) is forecasted at 9.2% (up from 9%), attributed to disciplined investments in self-produced content.
  • Net loss margin is expected to be 2.2% (down from 3%), due to ongoing opex optimization.

• Full-Year Outlook (FY22E):

  • Revenue is projected to decline by 16.5% YoY to RMB9.48bn.
  • Gross profit margin is expected to be 6%, as fixed content costs (LPL tournament licensing) and contracted revenue will weigh on margins.
  • Adjusted net profit margin is forecasted at -6%, due to cost optimization efforts.
  • Despite short-term margin dilution, margin improvement is expected in FY23E, driven by tournament licensing rearrangement and potentially lower revenue sharing.

• 2H22E Outlook:

  • Live streaming revenue is expected to decline in high single-digit QoQ in 3Q22E, with a slight recovery in 4Q22E, considering livestreaming adjustments and overseas scaling back, but potential offset by new features targeting high-ARPPU users.
  • Ads and others may see positive growth in 4Q22E due to LPL tournaments.

• Investment Rating:

  • Maintain BUY with a lower target price of US$4.0, down from US$6.0.
  • The target price is 0.67x FY23E P/S, indicating a discounted valuation.
  • The current price is US$3.4, with a potential upside of +17.6%.

• Financial Summary:

  • Revenue is expected to decline over the next few years, with FY22E at RMB9.48bn, FY23E at RMB9.527bn, and FY24E at RMB9.772bn.
  • Adjusted net profit is projected to be -RMB561mn in FY22E, -RMB204mn in FY23E, and RMB53mn in FY24E.
  • The P/S ratio is 0.67x for FY23E, while the P/E ratio is 127.8x.
  • The ROE is expected to be 0.5% in FY24E, reflecting weak profitability.

• Stock Performance:

  • The stock has seen negative returns in the past year, with a 12-month price performance chart included.
  • The shareholding structure shows major holdings by Morgan Stanley (17.25%), Teachers Insurance & Annuity (7.93%), and ARK Investment (6.23%).

• Cash Flow and Balance Sheet:

  • Cash flow is expected to be negative in FY22E due to declining revenue and increased operating costs.
  • Net change in cash is projected to be -RMB927mn in FY22E and +RMB2,050mn in FY24E.
  • Current liabilities are expected to decrease in FY22E, while non-current liabilities are projected to rise.

• Key Ratios:

  • Live broadcasting accounts for 88.7% of total revenue in FY22E, with a declining trend.
  • Adj. net margin is expected to be -5.9% in FY22E, improving to -2.1% in FY23E, and 0.5% in FY24E.
  • ROE is expected to decline from 12.9% in FY20A to 0.5% in FY24E, reflecting weak profitability.

Key Information

• Target Price: US$4.0 (down from US$6.0).
• Current Price: US$3.4.
• Market Cap: US$796 million.
• Average 3-month turnover: US$6.08 million.
• 52-week High/Low: US$15.25 / US$3.04.
• Total Issued Shares: 87 million.
• Investment Rating: BUY.
• Auditor: Ernst & Young.
• Related Reports:
  • Challenges to linger (18 May 2022)
  • Reinvesting for growth (11 Nov 2021)
  • Initiation: Game streaming leader with eSport tailwinds (18 Jun 2021)

Summary of Financial Highlights

Summary of Key Drivers

• Live streaming is the primary revenue source but faces decline due to macroeconomic weakness and regulatory constraints.
• Ads and others are also under pressure due to lack of esports tournaments and weak gaming ad spending.
• Margin improvement is expected in FY23E due to tournament licensing restructuring and lower revenue sharing.
• Opex optimization is a key factor in reducing net loss margin.

Conclusion

HUYA is expected to face challenges in the second half of 2022 due to declining live streaming and ad revenue, but margin improvement and potential recovery in 4Q22E may provide some positive momentum. Despite the soft outlook, the research team maintains a BUY rating, citing potential for a 15% return over the next 12 months, and a lower target price of US$4.0. The stock has underperformed in the past year, with negative returns in the 1-month, 3-month, and 6-month periods, but the long-term outlook remains cautiously optimistic.