According to a newly updated forecast from Morgan Stanley, U.S.-listed Chinese companies that earn most of their revenue overseas could see their shares soar by more than 75%. Asian equity analyst Yang Liu and team not only raised their Tuya price target by 50 cents to $3.50 last Tuesday, but also released a separate note on Thursday saying they expect the Chinese company’s depressed shares to “absolutely rise over the next 60 days.” “This is because the stock price has recently fallen, making near-term valuations much more attractive,” the Morgan Stanley analyst said, referring to Tuya’s quarterly earnings last week. Tuya’s shares closed at $1.99 on Friday, down more than 13% so far this year. The company said first-quarter revenue rose 30% year over year to $61.7 million, mainly from selling cloud-based “internet of things” software to lighting and home appliance companies. Hotels, for example, can use Tuya’s system to remotely set mood lighting in each room. “Q1 2024’s better than expected performance reaffirmed the upward trend with a steeper slope,” Morgan Stanley analysts said, noting that Tuya raised its full-year sales outlook. “This is a significant move by a Chinese company to expand overseas and assume a global leadership position,” the analysts said. “Following the release of Q1 2024 results, we believe our previous OW thesis for Tuya is gradually coming to fruition as reflected in the improved fundamentals.” According to FactSet records, more than 80% of Tuya’s sales are derived from outside China, with domestic market growth slowing, the company said in its earnings call last week. Management noted that Europe is Tuya’s largest market, accounting for just over one-third of total sales, followed by Asia Pacific. Latin America accounts for about 15% of sales, the company said. “Our market share is growing as key competitors exited the market during the industry downturn in 2022-2023,” management said. “More and more major brands are moving from in-house IoT development to our platform.” Tuya is just one of many Chinese companies expanding overseas as their business capabilities improve and domestic growth slows. The company claims to have become one of Google’s certified solution providers in 2021, and said it integrated Google Cloud last year. On the data security front, Tuya announced last week that it had obtained the European Union’s GDPR data privacy certification. The company also claims to have data centers in the United States, Europe, India and mainland China. Tuya is expected to announce details about how it is integrating generative artificial intelligence into its products at its developer conference on May 29. The company, which is dual-listed in Hong Kong, also has a buy rating from Goldman Sachs. BNY Mellon holds more than 21% of Tuya’s outstanding shares, while U.S. venture capital firm New Enterprise Associates holds just under 20%, according to records accessed via the Wind Information database.
