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small-cap

Speculative Bets on These Small Caps – DOYU, TNK, LEJU

Dec 10, 2021 | Team Kalkine
Speculative Bets on These Small Caps – DOYU, TNK, LEJU

 

DouYu International Holdings Limited

DOYU Details

DouYu International Holdings Limited (NASDAQ: DOYU) is a game-centric live streaming platform in China. Users can experience immersive and interactive gaming and live entertainment streaming through the company's platform, available on PC and mobile apps. It derives its revenues through live streaming and advertisement. As of December 09, 2021, DOYU has 324.41 million American Depository Shares (ADS) listed and outstanding, with 10 ADS representing one ordinary share.

Latest News:

  • Share Repurchase Program: On August 30, 2021, DOYU announced a USD 100 million share repurchase program, which authorizes it to buy back its ordinary shares in the form of ADS over the next 12 months using its existing cash balance, subject to its insider trading policy and securities exchange laws. The company had repurchased ~USD 4.3 million worth of ADS as of September 30, 2021. 

Q3FY21 Results:

  • Slight Decline in Topline: The company reported a YoY decline of 7.80% in total revenue to RMB 2.35 billion in Q3FY21 (ended September 30, 2021) compared to RMB 2.55 million in Q3FY20. The decrease was primarily due to a greater revenue base in the prior-year period due to numerous noteworthy fan engagement events that facilitated the conversion of paying users.
  • Surge in Net Income: DOYU reported a net loss of RMB 121.42 million in Q3FY21 vs. net income of RMB 85.86 million in Q3FY20.
  • Cash and Debt Position: As of September 30, 2021, the company had cash & cash equivalents of RMB 4.78 billion and no outstanding debt.

 

Key Risks:

  • Political and Regulatory Risk: The Chinese authorities' crackdown on its US-listed businesses and the consequent possibility of stricter rules could dent the company's operations. This is after the passage of a bill in the US, which could lead to the delisting of some Chinese companies from the country's exchanges (in case the US authorities cannot satisfactorily audit the company for three consecutive years). These constitute significant political and regulatory risks for the firm.

Outlook:

  • In its Q3FY21 earnings release, the company stated that it intends to continue to extend its gaming genres and content offerings in the future. It also plans to leverage its specialized marketing techniques, adaptable operational strategies, and multiple content formats to turn DOYU into an industry-leading game-centric content ecosystem.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

  • % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

DOYU Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

DOYU's share price has declined 81.49% in the past nine months and is currently leaning towards the lower-band of its 52-week range of USD 1.98 to USD 20.54. The stock is currently trading below its 50 and 200 DMA levels, and its RSI Index is at 40.98. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 3.40.

Considering the significant correction in the stock price in the past nine months, increasing demand for online gaming platforms, China's regulatory crackdown, and other associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 2.645, up 0.19% as of December 09, 2021, 12:37 PM ET.