20221130-招银国际-Margin_surprise,_with_Shopline_as_next_driver_7页_849kb

JOYY Inc. (YY US) Company Update Summary

Core Content and Key Highlights

JOYY Inc. (YY US) reported its 3Q22 results, which exceeded expectations on margin performance, with guidance largely inline. The company's revenue declined by 10% YoY, but it beat the consensus by 2%. The strong non-GAAP net profit of US$71 million, which was 210% above the consensus, highlighted improved margins due to higher gross profit margin (GPM) and cost savings on operating expenses (opex).

Main Points

• Revenue and Growth:

  • 3Q22 revenue was US$587 million, down 10% YoY but 2% above the consensus.
  • 4Q22E revenue is expected to be between US$594 million and US$619 million, with a midpoint in line with consensus.
  • Revenue growth in FY22-24E is projected to be 5.1%, 3.5%, and 3.5% respectively, with a slight slowdown from previous years.

• Segment Performance:

  • Live Broadcasting: Revenue declined by 15% YoY in FY22E, but the segment is expected to stabilize and show low single-digit growth in FY23E.
  • Others: Revenue rose significantly in FY22E, contributing 7.7% of total revenue, with a strong CAGR in the upcoming years.

• Bigo Live:

  • Revenue and paying users declined by 16% and 0.5% YoY, respectively, due to macroeconomic challenges and competition.
  • However, some regions such as Australia, New Zealand, Philippines, and the UK showed sequential growth.
  • The company expects Bigo to resume growth in 2H23E, with positive YoY growth in FY23E.

• Shopline:

  • Shopline is expected to be a key growth driver, with a revenue contribution of US$40 million in 4Q22E.
  • Shopline is forecasted to deliver a CAGR of over 30% from FY22 to FY24E, contributing 9% of group revenue in FY23E.
  • Despite a net loss of US$45 million in 4Q22E, Shopline is expected to narrow its loss due to operating leverage and improved revenue mix.

• Margins and Profitability:

  • Non-GAAP net margin improved to 12% in 3Q22, up 4 percentage points from the previous quarter.
  • Adjusted net profit for 4Q22E is expected to be slightly diluted due to the annual gala and Shopline loss, but long-term margin improvement remains intact.
  • The company forecasts adjusted net profit margins of 6.1% in FY23E and 6.9% in FY24E.

• Earnings and Price Targets:

  • Earnings for FY22-24E have been revised downward by 6% to 26% due to Shopline's net loss and soft macroeconomic conditions.
  • Despite the revision, the target price (TP) remains at US$50, unchanged from the previous TP.
  • The current share price is US$29.1, implying a 71.8% upside from the current price to the TP.

• Financial Position:

  • JOYY has a strong cash position, with net cash of approximately US$4.3 billion as of 3Q22.
  • The company has repurchased US$342 million of shares, representing 28.5% of its total repurchase program.
  • The company's market cap is US$1,922 million, with a 12-month price performance showing a decline of 32.4%.

Key Information

• Shareholding Structure:

  • Major shareholders include T Rowe Price Group (9.58%), Capital Group (4.67%), and BlackRock (4.65%).

• Valuation Metrics:

  • P/E ratio for FY23E is 13.5x, and for FY24E is 11.9x.
  • P/S ratio is 0.8x for both FY23E and FY24E.
  • The company's yield is expected to increase to 9.1% in FY24E.

• Comparative Valuation:

  • JOYY is compared to other companies in the China Internet sector, such as Hello Inc, iQIYI, and Kuaishou, with a valuation multiple of 15x for FY23E and 11.3x for FY24E.

Analyst Recommendations

• Rating: BUY (Maintain)
• Target Price: US$50.0
• Upside/Downside: +71.8%

Financial Summary

• Revenue:

  • FY20A: US$1,918 million
  • FY21A: US$2,619 million
  • FY22E: US$2,409 million
  • FY23E: US$2,531 million
  • FY24E: US$2,618 million

• Gross Profit:

  • FY20A: US$540 million
  • FY21A: US$838 million
  • FY22E: US$850 million
  • FY23E: US$927 million
  • FY24E: US$966 million

• Net Profit:

  • FY20A: US$1,363 million
  • FY21A: US$-90 million
  • FY22E: US$426 million
  • FY23E: US$124 million
  • FY24E: US$150 million

• Cash Flow:

  • Operating cash flow is projected to increase in FY22-24E, indicating strong cash generation.
  • The company has a consistent cash position, with US$1,850 million in cash as of YE 31 Dec.

• Balance Sheet:

  • Total net assets are expected to rise, with shareholders' equity projected to increase from US$6,308 million in FY20A to US$7,156 million in FY24E.
  • The company maintains a strong liquidity position, with significant cash reserves and a stable balance sheet.

Key Ratios

• ROE: Expected to rise from 1.5% in FY20A to 2.5% in FY24E.
• ROA: Projected to increase from 1.2% in FY20A to 2.2% in FY24E.
• Gross Margin: Expected to rise from 34.5% in FY22E to 36.9% in FY24E.
• Operating Margin: Projected to increase from 2.5% in FY22E to 6.9% in FY24E.

Conclusion

JOYY Inc. (YY US) is expected to maintain its BUY rating despite a revision in earnings for FY22-24E due to Shopline's net loss and soft macroeconomic conditions. The company's strong cash position and share repurchase program are likely to support its share price. While Bigo Live faces short-term challenges, it is expected to resume growth in 2H23E. Shopline, as a fast-growing ecommerce SaaS provider, is projected to be a key driver for future revenue growth and margin improvement.