Brokers' take: DBS raises Sea TP to US$402 on higher valuation from e-commerce business

Lindsay Wong

Published Tue, Nov 23, 2021 · 07:34 AM

SEA Ltd is expected to see an upside in its revenue due to potential growth in its gaming, e-commerce and fintech businesses, according to DBS Group Research.

In a report on Tuesday (Nov 23), the brokerage maintained a "buy" call on the Singapore-based consumer Internet company and raised the target price from US$390 to US$402, on higher valuation from its e-commerce business.

Shares of Sea last closed at US$299.13 on Nov 22 on the New York Stock Exchange, down US$10.86 or 3.5 per cent.

The higher target price is based on an adjustment to fair value per share estimates to US$269, US$100 and US$23 for Sea's e-commerce, gaming and fintech segments, respectively, as opposed to the previous estimates of US$242, US$117 and US$19.

Analyst Sachin Mittal is optimistic that Sea's e-commerce business will present a "hyper-growth story" based on its 82 per cent revenue CAGR (compound annual growth rate) estimate compared to 72 per cent previously, and a 33 per cent average CAGR offered by other major players.

Mittal attributes the increased CAGR estimate to Shopee's success in Brazil, noting that it became the country's most downloaded shopping app over the last 2 years whereas it took about 5 years for the app to achieve the same in South-east Asia.

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The analyst also believes Shopee's GMV (gross merchandise value) has been boosted by the pandemic as more consumers opt for online shopping, and expects the app to capture an even larger market share as the pandemic forces more sellers and brands to go online.

With Shopee's plans to expand further into the Latin American and European markets, Mittal estimates Shopee's GMV to reach US$64 billion in FY2021 and US$102 billion in FY2022.

Within Sea's gaming segment, Mittal sees Garena as a "cash cow" as it plays a "pivotal role" in supporting the expansion of the other 2 segments. While he believes gaming will continue to grow and generate cash flow, this will be at a slower pace.

"Importantly, Garena continues to win market share by expanding into new markets, new games and upgrading features," says Mittal.

Highlighting an increasing uptake of SeaMoney's credit business, he sees potential for the e-wallet service, as well as the app's food-delivery service, to transform Shopee into an everyday app.

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Sea Ltd Shopee Garena

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