Internet platform provider Sea’s 3QFY2020 results came in above expectations with strong revenue growth at 99% y-o-y, say CGS-CIMB analysts Ong Khang Chuen and Darren Ong. In a Nov 18 note, the analysts maintained their ‘add’ call on the company, with a raised target price of US$210.0 from US$185.3.

“Sea’s 3Q20 revenue of US$1.2 billion (+37% q-o-q, +99% y-o-y) was ahead of expectations, led by stronger bookings in its digital entertainment (Garena) and better monetisation of its e-commerce (Shopee) units,” note the analysts.

Led by Garena’s strong earnings growth, 3Q20 adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of US$120.4 million came in significantly stronger compared to 2QFY2020’s US$7.7 million and previous year’s loss, note CGS-CIMB.

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“9M adjusted net loss came in at 74% of our full-year forecast. SE expects strong growth momentum to continue into 4QFY2020, and raised full-year adjusted revenue guidance for Garena and Shopee to US$3.1 billion/US$2.3 billion, representing 75%/144% y-o-y growth, respectively,” they add.

For Garena, CGS-CIMB forecasts its revenue bookings to grow 100% y-o-y in 4QFY2020 to US$953 million (3QFY2020: +105% y-o-y). According to App Annie, Free Fire remains the highest grossing mobile game in Latin America and Southeast Asia in 3Q20, and management continues to see strong growth momentum across all markets, say the analysts,

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Player base continued to grow, with quarterly active users (QAU) reaching 572 million (+78% y-o-y) while the paying ratio also rose by 1.4% pts to 11.4% in 3QFY2020. Sea seeks to further grow its player base and raise engagement levels by leveraging e-sports tournaments and localised branding strategies. Garena’s average revenue per user (ARPU) remains low at US$1.70 as of 3Q20, and management sees a long growth runway ahead.

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Shopee benefited from the deepening of digitalisation across ASEAN, accelerated by the lockdown measures this year, say the CGS-CIMB analysts. “We forecast Shopee’s 4QFY2020 adjusted revenue growth to remain strong at 123% y-o-y.”

Gross merchandise value (GMV) rose strongly to US$9.3 billion in 3QFY2020 (+103% y-o-y), underpinned by higher gross orders of 741.6 million. 

Leveraging its market leadership position in ASEAN, we believe Shopee has multiple levers to pull to further increase its monetisation rate, and forecast narrowing losses in e-commerce to help Sea achieve non-GAAP (generally accepted accounting principles) profitability by FY2022. 

Shares in Sea closed on Nov 17 US$7.48 down, or 4.20% lower, at US$170.62.