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Positive 1QFY2024 results expected, CGS keeps ‘add’ on Sea with higher TP of US$76

Khairani Afifi Noordin
Khairani Afifi Noordin • 3 min read
Positive 1QFY2024 results expected, CGS keeps ‘add’ on Sea with higher TP of US$76
The analysts forecast Sea to report improved adjusted ebitda performance on a q-o-q basis in 1QFY2024 to US$247 million. Photo: Bloomberg
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Analysts at CGS International are keeping “add” on Sea with a higher target price of US$76 ($103.43) from US$74 previously, ahead of the company’s 1QFY2024 ended March results which will be reported in mid-May. 

In their April 24 report, analysts Ong Khang Chuen and Kenneth Tan expect a positive set of results overall. Most notably, Sea’s e-commerce arm Shopee is expected to significantly narrow its segment ebitda loss by 57% q-o-q to US$96 million in 1QFY2024.

The analysts think Sea’s gross merchandise value (GMV) should show strong y-o-y growth momentum in the quarter to US$22.8 billion, helped by the lower base effect in 1HFY2023 and earlier timing of Ramadhan in 2024. 

“We forecast Sea to report generally accepted accounting principles (GAAP) revenue of US$3.68 billion in 1QFY2024. We expect revenue growth across all three of Sea’s core segments, including its digital entertainment segment (Garena) which is likely to return to positive y-o-y growth after eight consecutive quarters of decline,” they add.

CGS has factored in some negative impact from foreign exchange translation, given the continued appreciation of the US dollar against Southeast Asian currencies during the period. The analysts forecast Sea to report improved adjusted ebitda performance on a q-o-q basis in 1QFY2024 to US$247 million, a 117% growth q-o-q. 

This will be mainly driven by narrower adjusted ebitda losses for e-commerce, while profits generated from the company’s gaming and digital financial services segments remain largely stable. 

See also: Brokers’ Digest: Sea, ST Engineering, MINT, KIT, Kim Heng, Grab, DHLT, Seatrium

The analysts also highlight signs of improving competitive landscape in Asean e-commerce. They point out that e-commerce platforms across Asean have been actively raising commission rates year-to-date (YTD). 

Shopee remains the price leader, hiking its fees in Indonesia and Vietnam in December last year and January this year, followed by other Asean markets in March and April. The adjustments were typically between 100 basis points (bps) and 150 bps, but could reach 400 bps on the high-end. 

“Notably, TikTok Shop has imposed another round of hikes YTD, despite raising fees just about six months ago. TikTok Shop will match Shopee’s marketplace commission rates in Indonesia effective May 2024, though it is still charging lower fees in other markets. 

See also: Citing revenue and margins growth, Maybank raises Dyna-Mac's target price to 52 cents

“Based on our web visit analysis, we also observed that Shopee has meaningfully widened its leadership position against shelf-based e-commerce peers (Lazada, Tokopedia) over the past nine months. We expect the commission rate adjustments to further grow Shopee’s take-rate in 2QFY2024, which could lead to another quarter of meaningful cash burn easing,” the analysts add.

CGS still expects Shopee to achieve ebitda positive by 3QFY2024, as well as breakeven on a full-year basis. 

Shares in Sea closed US$1.26 higher on April 24 or 2.03% up at US$63.27.

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