Photo: Bloomberg

CGS-CIMB Research analysts Ong Khang Chuen and Darren Ong have kept “add” on SEA Limited with an unchanged sum of the parts (SOTP)-based target price of US$315 ($419.10) after the group’s 1QFY2021 results beat the brokerage’s expectations.

Sea Limited, for the 1QFY2021 ended March, saw adjusted revenue surge 144% y-o-y and 11% q-o-q to US$2.1 billion, beating the analysts’ expectations.

The higher topline was led by stronger bookings in Garena, its digital entertainment unit, as well as the better monetisation of its e-commerce units, Shopee.


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Adjusted EBITDA for the 1QFY2021 stood 81% higher q-o-q at US$88 million, a reversal compared to the previous year’s losses; albeit falling short of estimates due to the group’s continued investments to drive growth.

Overall, adjusted net losses for the 1QFY2021 of US$321 million stood 30% and 23% wider than the analysts’, as well as consensus’ expectations respectively.

Garena posted 117% y-o-y higher bookings of US$1.1 billion and 140% y-o-y higher adjusted EBITDA of US$717 million, coming in above the analysts’ expectations. The higher figures were led by strong growth of its self-developed game, Free Fire, which remained the highest grossing mobile game in Latin America, Southeast Asia and India.

Operating metrics for Garena remained positive during the quarter with quarter active users increasing 61% y-o-y to 648.8 million.

Paying ratio rose by 3.4 percentage points to 12.3% in the 1QFY2021.

“Management believes Free Fire is still in the early stages of growth, and continues to see opportunities to expand its player base in all markets. We believe the launch of Free Fire Max (expected to come later 2021) could be a catalyst. The game features enhanced graphics and better animation, and could help expand its reach in developed countries,” write the analysts in a May 18 report.

Shopee, SEA’s e-commerce arm, saw revenue surge 250% y-o-y to US$922.3 million, ahead of expectations. Gross merchandise value (GMV) grew 103% y-o-y to US$12.6 billion in the 1QFY2021. Take rate also continued to expand in the quarter.

However, adjusted EBITDA losses for Shopee narrowed at a slower-than-expected pace.

That said, the analysts say they remain positive as the recent resurgence of Covid-19 infections across the region remains a tailwind for the sector.

“[We] believe FY2021 is a year for driving monetisation for Shopee,” they write.


SEE:CGS-CIMB believes Sea Limited will have a 'strong start to the year' ahead of 1Q21 results


“We note that Shopee’s marketplace commission in Indonesia has been raised since April, and commissions in Malaysia will be hiked similarly from June onwards,” they add.

To this end, the analysts say they continue to “like” SEA Limited for “its solid execution across all three key segments”.

“With the recent resurgence in Covid-19 cases in Asean, we see tailwinds for accelerated digital demand growth in the region, and believe SE could be a beneficiary.”

Shares in SEA closed US$9.16 higher or 4.2% up at US$228 on May 18, or 38.30 times P/BV, according to CGS-CIMB’s estimates.