Summary

Temasek-backed 65 Equity Partners bought 13% stake in Tuya Inc. TUYA, implying a total investment of US$100 million (or S$134M). The fund's mandate is to support high growth, mid-cap companies seeking a listing on the Singapore Exchange (SGX). The listing will benefit Tuya Inc. by providing easy access to capital and liquidity. Tuya Inc. will be able to use stock as a currency to fund its expansion plans in Southeast Asia.

The Company is a leading provider of IoT platform services which enables businesses to make their devices ‘smart'. Tuya offers a one-stop platform including PaaS, SaaS and smart solutions for brands and developers to develop, launch, manage, and monetize smart devices and services. Tuya's recent Q3 results showed strong momentum in the business, with revenue up 33.6% Y/Y. The revenue from IoT Platform as a Service (PaaS) experienced an increase exceeding 26% Y/Y, indicating a consistent trend of recovery. The smart solutions sector recorded a remarkable Y/Y revenue growth of over 100%, whereas the Software as a Service (SaaS) and other segments witnessed an approximate growth of 17% Y/Y.

Our target price of US$3.20 is derived using a 5.1x P/S multiple on 2025E revenue of US$356.1M.

Investment Highlights

Strategic Investment to Expand Tuya's Presence in Southeast Asia

We are encouraged to see strategic investment in Tuya by Temasek-backed 65 Equity Partners, an investment firm dedicated to supporting high-growth mid cap companies seeking a listing on the Singapore Exchange (SGX). 65 Equity Partners acquired a 13% stake in Tuya for S$134 million. Tuya will be able to leverage 65 Equity Partners' presence in Southeast Asia to expand in the region which offers significant growth opportunities. The SGX listing will benefit Tuya by providing easy access to capital and liquidity. Tuya will be able to use stock as a currency to fund its expansion plans in
Southeast Asia.

Recent Q3 Results Show Strong Momentum

Tuya's recent Q3 results showed strong momentum in the business, with revenue up 33.6% Y/Y. Revenue growth was led by a 26.4% increase in IoT PaaS revenue and a 102.9% growth in smart solution revenue. Gross margins were solid at 46%, owing to a 230 bps Y/Y margin improvement in the IoT PaaS business. Non-GAAP operating margin was 9.3%, the second consecutive quarter of positive margins, reflecting improved efficiency and execution in the business. The improvement in profitability is reflected in the increasing operating cash flow which stood at US$23.9 million in Q3:24. Cash and cash equivalents were US$1 billion, with no debt. As a result of the improvement in profitability metrics, the Company issued a first-time special dividend.

Management noted that there is potential for revenue growth to remain high given the significant under penetration of IoT (in low-single digits currently). Co-founder Yi Yang in the recent Q3 earnings call was upbeat about the prospects of everything being connected in the next decade or two. As a result, we expect the topline growth to remain healthy over the medium term and also expect margin improvement as the operating leverage plays out.

Attractive Valuation

We note the Tuya's market cap is less than the net cash on its balance sheet. This implies a negative EV for Tuya and as such we focus on P/S multiple for our valuation. Tuya is currently trading at 2.7x 2025 P/Sales, which is at asignificant discount to the peer group average of 12.1x. Note that, we have used SaaS/PaaS listed players as a peer group (shown
in Exhibit 1). We value TUYA at 5.1x 2025E revenue of US$356M, at a 50% discount to the peer group average given its small size. This gives us a fair value per share of $3.20 for TUYA.

Source: GSBR Research

Key Risks

Key risks to our call are inconsistent profitability, intensifying competition and weaker-than-expected customer growth.

Conclusion

Our positive investment thesis for TUYA is driven by several factors including its one-stop IoT development platform that enables to develop smart devices without coding, a large TAM and the recent investment by 65 Equity Partners that showcases confidence in the Company. Note that the net cash on the balance sheet exceeds the market capitalization of the Company, implying significant undervaluation. Even when compared to peers, TUYA trades at a 74% discount to the average P/S peer group multiple. In Conclusion, at current levels, TUYA is an attractive investment opportunity in our view.

Exhibit 1: PEER COMP TABLE