Brokers’ take: Analysts shave Sea targets in view of rising rates, slower e-commerce growth

ANALYSTS on Wednesday (May 18) cut their target prices on Singapore-based tech giant Sea in view of rising interest rates and slower e-commerce revenue growth.

That being said, the analysts from CGS-CIMB and Citi Research have maintained their respective “buy” and “add” calls on the group, amid better-than-expected Q1 results released on Tuesday.

CGS-CIMB slashed its target price on the New York-listed stock to US$150 from US$202, representing a potential upside of 85.5 per cent from Sea’s Tuesday after-hours price of US$80.85. The counter was up 0.8 per cent or US$0.64 at the time.

The cut in target price comes as CGS-CIMB lowers its target multiples across Sea’s segments in view of the rising interest rate environment, it said in a report. Sea owns game developer Garena and online shopping platform Shopee.

Citi also lowered its target price to US$156 from US$162, representing a potential upside of 92.9 per cent. The drop in target price reflects slower e-commerce revenue growth, the research team said in a separate report on Tuesday.

It noted that Sea’s Q1 results were better than expected, especially the outperformance in games revenue. Management had also noted a stabilisation of game user trends by the end of the quarter, suggesting successful efforts in engaging users, Citi added.

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Meanwhile, CGS-CIMB remains positive on Sea as Q1 results show operating leverage gains for Shopee and SeaMoney while maintaining strong growth trends. Results were in line with CGS-CIMB’s expectations but above Bloomberg consensus, the analysts noted.

Although the group widened its revenue guidance for Shopee’s FY2022 to US$8.5 billion-S$9.1 billion from S$8.9 billion-S$9.1 billion, the midpoint of its guidance still points to a continued strong growth of 71.8 per cent year on year, despite macroeconomic challenges.

CGS-CIMB noted that Shopee continues to scale well in Brazil, with its loss per order narrowing 45 per cent to US$1.50 and order volumes surging 200 per cent on the year.