YY Inc. Still Cheap Despite The Fear-Mongering And Shouting Regarding China

By all measures, China's YY Inc. has enjoyed a spectacular year. The leading online social entertainment/live streaming platform company in China has seen its shares jump almost 60% year-to-date, handily beating the technology-heavy Nasdaq which is up 22% thus far in 2017.

The Street expects the company will earn $6.06 per share in 2017, and is expected to increase to $7.22 for 2018. Revenues for this year are expected to come in at $1.65 billion and increase to $2 billion for 2018. Shares of YY currently trade at $88.74 (close as of 10/6/17) and the company is currently valued at $5.5 billion.

A month and a half ago the company raised around $400 million in order to meet its expansion plans going forward. YY should now have $900 million or so in cash which is about $16-$18 per share. We will find out the exact numbers when YY reports earnings for the third quarter in the back half of November.

Goldman Sachs initiated coverage on the company at the end of August with a $101 per share price target. Of course, they picked up coverage after getting a fat check for helping place the secondary offering. However, that's the Wall Street way, isn't it?

YY has beat Street earnings estimates by an average of 30% the last four sequential quarters. Going forward, things get harder as estimates go higher with every big beat as they should. Current expectations for Q3:17 are for revenues of $422 million and earnings of $1.45 per share.

YY is another one of the Chinese companies that trades at far below even market multiples for no explicable or rational reason except for China apathy/fear/hatred.

At less than 10x (factoring out the cash) estimated earnings for 2018, YY is very cheap given its expected growth rates for 2018, despite the rise in the shares thus far in 2017. At current Street estimates, 2018 earnings will increase by 19% and revenues are also expected to be up 21% year-on-year.

Despite the 60% a pop for 2017, shares of YY still presents potentially rewarding investment opportunity going forward.

However, investors should not be blindly long and strong but should instead be carefully/cautiously long and strong.

My fair value for YY is between $110-$115 per share, which is still a 25% discount to current market multiples, even though there is no reasonable basis for a discount. Let's call it an appeasement to the sweaty-palmed hand-wringing and noisy shouting and screaming about all Chinese investments by the darksiders.

Shares of YY closed at $88.74 on October 6, 2017.

(Long YY)

Original Link
https://www.forbes.com/sites/jaysomaney/2017/10/10/yy-inc-still-cheap-despite-the-fear-mongering-and-noisy-shouting-regarding-china/#aebbba05a51a