INTERNET company Sea will likely gain from its growing e-commerce and delivery businesses, although at the cost of Grab and GoTo, DBS Group Research said.

In a report on Thursday (Feb 24), analyst Sachin Mittal said he was positive on Sea's growth potential, and expects its Ebitda (earnings before interest, taxes, depreciation and amortisation) for its e-commerce business will break even in the second half of 2022. He has a "buy" call and target price of US$272 on the stock.

Meanwhile, Mittal downgraded competitor Grab to a "hold" call until there are "concrete signs of improving profitability", and cut its target price to US$5.60 from US$9.

The analyst had raised his estimates for Grab's adjusted Ebitda loss by 74 per cent for FY2022 and 92 per cent for FY2023, noting that the battle between the super apps will likely delay profitability.

Shares of Grab, which trades on the Nasdaq, closed down US$0.20 or 3.8 per cent at US$5.50 on Thursday, while Sea ended US$2.23 or 1.9 per cent higher at US$122.75 on the New York Stock Exchange. GoTo Group, formed through a merger between ride-hailing giant Gojek and e-commerce platform Tokopedia, was said to be eyeing an initial public offering in Indonesia in 2022.

Mittal is positive on Sea's food delivery segment, ShopeeFood, gaining market share, as well as rising e-commerce monetisation from advertisements on e-commerce platform Shopee and mobile game Free Fire Max.

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ShopeeFood, which gained a market share of 8 per cent in Indonesia since its launch in March 2021, will likely double its share in 2022, with its initial markets Indonesia and Malaysia providing "immense market opportunities" largely due to rising populations and growing smartphone and internet penetration.

Sales generated by Shopee ads will likely continue growing in 2022, and Free Fire Max's monetisation has also been "on a rather solid trajectory".

Meanwhile, ShopeeFood's growth would mean a loss of market share for Grab's GrabFood and Gojek's GoFood, and delay the breakeven for Grab's delivery business segment.

Grab's margins will also likely be hurt by its driver incentives and consumer discounts since early 2022, which were put into place to stop further market share gains for Gojek in both Singapore and Indonesia.

In addition, Grab's e-wallet Ovo will face difficulties in Indonesia in replacing the payment business generated through e-commerce platform Tokopedia, despite the addition of new ecosystem partners including Bukalapak and Lazada.

Given Sea's bigger scale and higher margin potential, Mittal said the counter should trade at an at least 30 per cent premium to Grab.

READ MORE:

• Sea's Free Fire among apps India bans on China security fear

• Grab's share price fall reflects some difficult realities for the company

• Grab and foodpanda go physical in race to win q-commerce grocery wars