On Monday, JPMorgan upgraded HUYA Inc. (NYSE: HUYA) stock from Neutral to Overweight, significantly increasing the price target to $9.00 from the previous $3.00.
The firm's optimism stems from the game streaming platform's strategic realignment and collaboration with its major shareholder Tencent, which holds a 66% stake in HUYA.
HUYA, recognized as a leading game streaming platform in China, is shifting its revenue model from live streaming to game promotion, which includes game advertisements, game distribution, and in-game item sales.
This move is expected to tap into the rich monetization potential offered by Tencent's strong game portfolio and HUYA's dedicated gamer fan base, which reported 83 million mobile monthly active users (MAU) in the first quarter of 2024.
The analyst from JPMorgan anticipates a significant increase in HUYA's non-live streaming revenue, projecting a fivefold growth from 2023 to 2026. This is expected to drive the company's adjusted net profit, with a compound annual growth rate (CAGR) of 63% between 2025 and 2026. This growth trajectory positions HUYA as one of the fastest-growing profit compounders among China's internet companies.
Despite HUYA's share price having already risen by 92% year-to-date, outperforming the KWEB index's 19% increase, JPMorgan believes there is further upside potential. The valuation of HUYA is considered attractive, trading at 23x and 11x 2024 and 2025 estimated P/E ratios, respectively, against a forecasted 69% EPS CAGR in 2025-2026. Additionally, HUYA's net cash position, which represents 83% of its market capitalization, is seen as a strong financial foundation.
The firm also notes the potential for increased monetization over the next one to two years through enhanced cooperation with Tencent and possibly other gaming companies.
JPMorgan's adjusted net profit forecasts for 2024 and 2025 are 63% and 101% higher than the consensus, respectively. The imminent launch of DnF Mobile on May 21 is expected to be another catalyst for HUYA's share price, as the platform will play a significant role in the live streaming and promotion of the game.
InvestingPro Insights
The recent upgrade of HUYA Inc. by JPMorgan highlights the company's strategic pivot and the potential for significant growth in its non-live streaming revenue. Supporting this outlook, InvestingPro Tips indicate that HUYA holds more cash than debt on its balance sheet and net income is expected to grow this year. These factors suggest a robust financial position and a positive trajectory for profitability, aligning with JPMorgan's analysis.
From a valuation standpoint, HUYA is currently trading at a low revenue valuation multiple, which could capture the attention of investors looking for undervalued opportunities in the gaming and streaming sector. Moreover, with the company's strong return over the last month and last three months, as evidenced by a 58.15% and 120.72% price total return respectively, investor sentiment appears to be improving.
Key InvestingPro Data metrics reveal a market capitalization of 1370M USD and a Price to Book ratio as of Q1 2024 at 1.04, which may appeal to value-focused investors. Additionally, despite a negative Revenue Growth of -24.92% over the last twelve months as of Q1 2024, the substantial increase in HUYA's share price suggests that market participants are optimistic about the company's future prospects.
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