YY delivered eye-catching 3Q20 results, with revenue/adj. net profit +36% YoY/+64%% YoY, 5%/38% above consensus. YY Group would sell YY Live to Baidu at US$3.6bn in 1H21. We turn more bullish on overseas TAM and Bigo’s momentum, backed by continuous user penetration and Likee’s initial monetization amid geographic risks. We raised its topline by 4%/3%/3% in FY20/21/22E for stronger Bigo, and lifted our TP to US$130 from US$110.
- Upbeat 3Q20 with strong Bigo. 3Q20 revenue grew 36% YoY (-9% pro-forma), 5% above consensus. Adj. net profit grew 64% YoY (+39% pro-forma), 38% above consensus. We believe this upbeat result would drive its price up, coupled with YY Live sale at decent price.
- All in overseas expansion, with first quarterly non-GAAP operating profit. Bigo rev surged 121% YoY in 3Q20, 12% above our estimates, mainly on eye-catching performance in developed markets. YY’s globalization saw series of fruits, including: 1) first quarterly non-GAAP operating profit for Bigo in 3Q20; 2) Hago to achieve monthly breakeven in 4Q20E, with livestreaming rev +42% YoY; and 3) outperformance in developed market (rev +272% YoY), with effective user expansion amid geographic risk (Bigo Live/ Likee MAU +58% YoY/+147% YoY). Given overseas livestreaming TAM of over US$10bn, we believe Bigo is still at early development, and would benefit from structural opportunities in global epidemic, with deeper penetration and diversified revenue. Likee still prioritizes user expansion over monetization, while Bigo Live will see more upside from developed countries for higher APRU & paying ratio upside. We forecast its rev to grow at 35% CAGR in FY20-22E.
- YY Live to sell at US3.6bn. Baidu would acquire YY Live at US$3.6bn in cash in 1H21, higher than our prior valuation of US$2.6bn (8x FY21E P/E). We view this transaction positive to YY, given its decent price and more funds for overseas expansion and domestic investment (e.g. AI, ecommerce). Special dividends might follow this transaction.
- Maintain BUY. To reflect better outlook of Bigo, we raised its topline by 4%/3%/3% in FY20/21/22E, and lifted our SOTP-based TP from US$110 to US$130, coupled with higher valuation of YY Live. Valuation is attractive (Bigo at 3x FY21E P/S), given its high growth potential in overseas TAM.
