We use a PS methodology to value Huya given our expectation of thin margins ahead amid competition. We derive our target price of US$5.0 by applying 1.25x 2026E PS, based on average of: 1) China live-streaming peer average of 1.0x; and 2) low end of China game distributor peer average of 1.5x.

Key downside risks that could drive the shares below our target price include slowdown in game-related services, softer live-streaming business amid weaker macro, worse competitive environment, earnings volatility, and change in shareholder policy.