On Wednesday, Citi reiterated its Sell rating on shares of HUYA Inc. (NYSE: HUYA), with a consistent price target of $2.30. The firm's analysis follows the company's fourth-quarter results for 2023, which showed revenue slightly above expectations and a narrower non-GAAP net loss than both Citi and consensus estimates.
HUYA, a company specializing in live streaming services, is expected to experience challenges in its core business due to ongoing adjustments. Still, advertising revenue could see a modest increase, driven by a rise in gaming-related revenues.
The gross profit margin (GPM) is anticipated to improve year-over-year, benefiting from a growing share of higher-margin gaming revenues and prudent cost control measures that are likely to enhance earnings.
The company also declared a special dividend of $0.66 per American Depositary Share (ADS), which corresponds to a payout ratio of 894% and a dividend yield of 15%. This dividend represents 10.7% of HUYA's cash position, which stood at $1.4 billion as of December 2023. Despite the substantial dividend, Citi expressed concerns about the sustainability of such a high dividend scale, given HUYA's thin margins.
Citi has adjusted its revenue forecasts for HUYA for the years 2024 and 2025, reducing them by 1% and 0%, respectively, to reflect the company's business transition. The stock price target remains unchanged at $2.30. The firm's stance on HUYA is based on a muted short-term outlook and the belief that the stock's recent rally is not justified by the company's financials or growth prospects.
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