Should You Exit This NYSE-Listed Entertainment Stock – HUYA

Mar 17, 2022 12:00 AM PDT | Team Kalkine
Should You Exit This NYSE-Listed Entertainment Stock – HUYA




HUYA Inc. (NYSE: HUYA) is China's most popular game live streaming platform, with a large and active community of live game streamers. The company collaborates with e-sports event organizers, major game developers, and publishers, and e-sports live streaming has become one of the most popular content genres on its platform. The business has created 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).

Why should Investors make an Exit?

  • Decline in Margins: On a sequential basis, the company's Gross, EBITDA, and Net margins all declined significantly. HUYA's Gross, EBITDA, Net margins were 16.9%, 2.8%, and 4.9% in Q3FY21 (ended September 30, 2021), compared to 19.6%, 6.1%, and 6.3% in Q2FY21. From the previous four quarters, the margins have been steadily diminishing.
  • 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: Tencent Holdings Limited owns 69.7% of HUYA's common stock as of March 31, 2021, providing it significant control over its activities. As a result, other shareholders' capacity to influence company decisions is limited.

Valuation Methodology: Price/Sales Per Share-based Multiple Based Relative Valuation

Analysis by Kalkine Group

Stock Recommendation:

HUYA's share price has remained on a bearish trend, fallen 69.24% in the past nine months and is currently leaning towards the lower-band of its 52-week range of USD 3.23 to USD 26.98. We have valued the stock using the Price/sales multiple based relative valuation methodology and arrived at a target price of USD 4.23.

Considering the current trading levels, continuous decline in margins, geopolitical risks, current valuation, and other technical indicators, we recommend a "Sell" rating on the stock at the closing price of USD 5.09, up 39.84% as of March 16, 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing.

Three-Year Technical Price Chart (March 16, 2022). Source: REFINITIV, Analysis by Kalkine Group

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.