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Sea’s share price to remain volatile near term on slower topline growth in FY2023: CGS-CIMB

Khairani Afifi Noordin
Khairani Afifi Noordin1/13/2023 11:35 AM GMT+08  • 2 min read
Sea’s share price to remain volatile near term on slower topline growth in FY2023: CGS-CIMB
The analyst forecast Sea to achieve adjusted ebitda breakeven by 2QFY2023. Photo: Bloomberg
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CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan are keeping “add” on Sea with an unchanged target price of US$75 ($99.23) on attractive risk-reward at current valuation.

In their Jan 12 report, the analysts expect the share price to remain volatile in the near term due to slower topline growth in FY2023, given Sea’s strong monetisation push and looming fear of an economic slowdown in the region.

“We expect stronger share price re-rating upon Sea achieving profitability milestones and re-acceleration of topline growth upon self-sufficiency, thereafter,” they add.

Following a slew of cost-cutting measures such as layoffs and early list terminations, as well as culling various loss-making business ventures to reduce losses, tha analyst believes Sea is at the tail-end of corporate changes.

Together with efforts to improve unit economics through stronger monetisation and reduction of sales incentives, Sea has achieved meaningful q-o-q reduction in ebitda losses in 3QFY2022. The analysts expect the trend to persist until Sea achieves its self-sufficiency target.

“We forecast Sea to achieve adjusted ebitda breakeven by 2QFY2023 and non-GAAP profitability by 4QFY2023,” they say.

See also: UOB Kay Hian upgrades Frencken to 'buy' due to 'positive outlook' for its key customer and improving cost pressures

The analysts also note that Sea’s e-commerce unit Shopee is pulling out of Poland effective Jan 13, exiting its last-standing e-commerce test market. Citing Bloomberg, Ong and Tan highlights that the company entered Poland in late-2021 as it debuted into the European market and currently employs about 200 staff there.

The exit decision ties into the company’s strategic focus of improving profitability and limiting cash burn in order to achieve self-sufficiency, without relying on additional external funding.

The analysts believe that Shopee will focus its efforts on core markets in Asean and Brazil, while maintaining its cross-border e-commerce services in Latin American countries Chile, Colombia and Mexico.

See also: Citi maintains 'buy' rating on Genting Singapore off the back of MBS results beat

In the Asean internet space, Grab remains CGS-CIMB’s preferred pick. This is due to its stronger revenue growth outlook in FY2023, led by its ride-hailing segment which should benefit from the economic reopening and tourism recovery.

Potential re-rating catalysts for Sea include resilient gross merchandise value numbers, despite the profitability push and earlier-than-expected profitability. Meanwhile, the downside risk is the macro slowdown impacting consumer spend in the region and hurting Sea’s top line growth.

Shares in Sea closed US$1.57 higher or 2.76% up on Jan 12 at US$58.38.

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