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Analysts keep 'buy' on Sea after 1QFY2024 revenue and ebitda beat consensus estimates

Nicole Lim
Nicole Lim • 4 min read
Analysts keep 'buy' on Sea after 1QFY2024 revenue and ebitda beat consensus estimates
Sea reported a significant narrowing of losses for Shopee, and management guides for 2H growth. Photo: Bloomberg
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Analysts are positive on Sea after its 1QFY2024 results ended March beat consensus estimates on both revenue and ebitda. The gaming and ecommerce platform reported a total revenue of $3.7 billion, 23% y-o-y, and an ebitda of $401 million, ahead of Bloomberg consensus of $221 million.

All four brokerage houses, UOB Kay Hian (UOBKH), OCBC Investment Research (OIR), Maybank Securities and Morningstar have kept their “buy” call. 

UOBKH has a target price of $78.39, Maybank has an unchanged target price of US$62, OIR increased its target price to US$86 from US$80 previously, and Morningstar has raised its target price to US$60.

UOBKH’s analysts John Cheong and Jacquelyn Yow say that Sea, having narrowed its losses to US$24 million in 1QFY2024, is a “substantial improvement” from US$91 million recorded in the quarter before. 

Sea’s e-commerce segment registered a reduced loss of US$22 million this quarter, and its flagship e-commerce platform Shopee achieved its highest-ever quarterly order volume, gross merchandise value (GMV) and revenue, the analysts note. 

The factors contributing to this include revenue improving from Sea’s logistics services, where SPX Express has driven down the cost per order by 15% y-o-y in Asia and 20% y-o-y in Brazil, improving the sub-segment margin.

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With sales and marketing expenses declining by 31% q-o-q, attributed to more stable market conditions and industry consolidation, this has led to a more efficient allocation of marketing resources, the analysts add. 

Meanwhile, Sea’s digital entertainment segment saw an increase in monthly active users of 12% q-o-q and 21% y-o-y this quarter. Its digital finance services “continued to remain resilient” leveraging on its Shopee platform, but the consumer and small and medium enterprises (SME) loans principal outstanding had also increased by 29% y-o-y.

“The results surpassed our estimate, with operating profit accounting for 30% of our full-year forecast. All segments demonstrated robust growth and an enhanced profit profile,” they say. 

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Looking ahead, Cheong and Yow expect significant improvements in 2024 earnings from all the segments and expect 2H2024 earnings to return to positive. 

They anticipate higher GMV from the e-commerce segment, double digital growth in digital entertainment and SeaMoney’s continued growth. 

As such, they’ve kept their “buy” call with a target price of $78.39, based on the sum of the parts-valuation method where they pegged the digital entertainment segment to 9.0x 2024 PE, 2.5x 2024 PS for the e-commerce segment and 20x 2024 PE for the digital financial services segment.

Likewise, OIR’s analyst Ada Lim cites stronger-than-expected e-commerce performance as key drivers for her “buy” call. Citing the management, Lim observes that Sea has guided for the FY2024 GMV growth to be in the high teens range. Adjusted ebitda for Shopee to turn positive in 2H2024, double digital growth y-o-y for both user base and bookings for Free Fire, have led to Lim making adjustments to her forecasts and an increase in target price from US$80 to US$86. 

Maybank’s analysts highlight a few upsides and downsides to Sea following its 1QFY2024 results. For upsides, Maybank says that Sea has stronger-than-expected user growth across all businesses and strong topline growth as Shopee could potentially capture more market share. 

Its downsides however are weaker-than-expected consumer spending in the region amid macroeconomic uncertainties, slower user growth metrics possibly due to increasing competition across Sea’s offerings, higher-than-expected credit costs for SeaMoney and new market entrants which could intensify competition in the Southeast Asia e-commerce industry. 

As such, Maybank has an unchanged target price of US$62. 

Finally, Morningstar’s Kai Wang says that his valuation increase by 28% to US$60 per share is driven by a less gloomy outlook for the gaming business, Garena, as well as slightly higher monetization and lower marketing expense forecasts for the e-commerce business, Shopee.

As at 10.59am, shares in Sea Limited are trading US$2.38 higher or 3.59% up at US$68.64.

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