Fundamentals to bottom out

Investment Rating - The report maintains a "BUY" rating for the company Huya, with a target price of US$6.8, indicating a potential upside of 44.5% from the current price of US$4.73 [4][10]. Core Insights - Huya's 1Q24 results exceeded expectations, with revenue declining 23% YoY but showing a 1% increase compared to consensus estimates. The adjusted net profit reached RMB92 million, which is 84% above consensus, driven by improved gross profit margins and operational efficiency [2][3]. - The company is expected to see a revenue growth of 5% QoQ in 2Q24, with the livestreaming segment anticipated to stabilize and other revenue sources projected to grow by 25% QoQ. The profitability outlook has been revised upwards for FY24, with adjusted net profit expected to reach RMB254 million, up from RMB132 million previously [2][3][10]. Financial Performance Summary - 1Q24 Financials: Revenue was RMB1,504 million, down 23% YoY, with a gross profit margin of 14.7%. The adjusted net profit was RMB92 million, reflecting a significant improvement in operational efficiency [2][3][13]. - Future Projections: For FY24, revenue is projected at RMB6,727 million, with a gross profit of RMB1,058 million and an adjusted net profit of RMB254 million. The company anticipates continued growth in subsequent years, with revenue expected to reach RMB7,834 million by FY26 [13][16]. - Valuation Metrics: The report highlights a P/E ratio of 50.9 for FY24, decreasing to 28.2 by FY26, indicating an improving valuation as profitability increases [16]. Revenue Breakdown - The revenue breakdown for 1Q24 shows that livestreaming revenue was RMB1,260 million, down 32.2% YoY, while other revenues surged by 172.7% YoY to RMB244 million, driven by game-related services and advertising [8][9]. - The company expects the livestreaming segment to stabilize in 2Q24, with a forecasted growth of 1% QoQ, while game-related services are projected to grow by 25% QoQ [2][3]. Profitability Metrics - The adjusted net profit margin for FY24 is expected to improve to 3.8%, with further increases projected in FY25 and FY26 [10][16]. - The gross profit margin is anticipated to rise from 15.7% in FY24 to 19.5% by FY26, reflecting enhanced operational efficiency and better monetization strategies [10][16].