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Analysts increase Sea Limited's TP to at least US$370 on its e-commerce revenue growth

Felicia Tan
Felicia Tan8/23/2021 03:41 PM GMT+08  • 3 min read
Analysts increase Sea Limited's TP to at least US$370 on its e-commerce revenue growth
DBS has pegged a TP of US$370 while UOB Kay Hian has a TP estimate of US$370.76.
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Analysts from DBS Group Research and UOB Kay Hian have maintained their respective “buy” calls on Sea Limited after the tech group reported a 158.6% y-o-y surge in revenue to US$2.28 billion ($3.10 billion) for the 2QFY2021 ended June.

The NYSE-listed Sea, however, saw its net loss deepen to US$433.7 million from US$393.5 million on the back of higher expenses in sales and marketing, general and administrative purposes, as well as research and development purposes.

See also: Sea Limited's sweet partnership with the Kuoks

That said, DBS analyst Sachin Mittal has upped his target price to US$370 from US$330 previously as Sea’s revenue surpassed expectations by 12%, while adjusted EBITDA loss of US$24.1 million stood in line with his expectations.

“We roll forward our valuation by six months and assign a fair value per share of US$237 (previously US$194) to the e-commerce business based on 1.2 times 24-month forward GMV, US$109 (previously US$107) to the gaming business based on 23.2 times 12-month forward price-to-earnings (P/E), US$20 (previously US$21) for fintech services and US$4 from net cash position,” he explains in an Aug 18 report.

Mittal has also revised FY2021 generally accepted accounting principles (GAAP) revenue upwards by 7% and 11% for the FY2021 and FY2022 respectively, which stands some 4% above consensus’ estimates.

“We expect consensus to raise projections upwards while Sea might continue to expand e-commerce business across Latin America, food delivery and fintech businesses across Southeast Asia,” he writes.

To him, there are several upsides to the counter, including its 92% compound annual growth rate (CAGR) over FY2020 to FY2022 compared to an average growth of 30% from the rest of the major players in the market.

“This stems from 63% CAGR in gross merchandise value (GMV) by Sea over the same period as more customers embrace e-commerce in Southeast Asia,” writes Mittal.

Sea has also revised its FY2021 guidance for its annual growth in the bookings of its gaming business to 41-48% from 34-40% previously, which should bring in enough cash to support the expansion of its new businesses, he adds.

Finally, Sea’s FinTech business looks set to transform its e-commerce platform, Shopee, into a superapp in Southeast Asia, notes Mittal.

Potential catalysts to Sea’s share price include the rising weightage of Sea in MSCI Singapore, coupled with strong quarterly results posted, he adds.

Meanwhile, higher losses in the e-commerce business and over-reliance on its Free Fire game could pose risks to his adjusted revenue projections.

UOB Kay Hian analyst Clement Ho has, too, raised his target price estimate to US$370.76 from US$314.48 on the back of “solid growth” in revenue, which beat his estimates.

“The implied FY2021 adjusted operating income of 73.5 times, which excludes sales & marketing and research & development expenses for more effective comparison, is supported by Sea’s 5-year adjusted operating profit CAGR of 52.7% over 2020-25. The target price translates to 22.4 times FY2021 price-to-sales, backed by a three-year revenue CAGR of 73.8% over FY2020-2023,” Ho writes in an Aug 19 report.

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He has also raised his FY2021 revenue estimates by 10% to US$8.59 billion in line with Sea’s revised guidance.

Accordingly, Ho has increased Sea’s adjusted operating income for FY2021 to FY2023 to US$2.83 billion (FY2021), US$4.18 billion (FY2022) and US$5.75 billion (FY2023) from US$1.9 billion, US$3.0 billion and US$4.53 billion respectively.

Shares in Sea closed US$11.67 lower or 3.63% down at US$309.33 on Aug 20 (New York time), with an FY2021 P/B of 80.9 times, according to DBS’s estimates.

Photo: Bloomberg

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