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At $65.5 bil, loss-making Sea overtakes DBS in market value

The Edge Singapore
The Edge Singapore6/19/2020 07:00 AM GMT+08  • 3 min read
At $65.5 bil, loss-making Sea overtakes DBS in market value
Sea vs DBS reflects the difference in how investors value tech companies versus traditional mainstays.
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SINGAPORE (June 19): Back in November 2017, DBS Group Holdings overtook Singapore Telecommunications’ long-held position as the most valuable publicly-traded homegrown company. The bank was actively showing off its strong embrace of digital processes and new technologies, and when it reported better margins as a result, investors were sufficiently impressed to drive its share price up by around 50% that year.

Singtel, in contrast, was seen as stuck in the “dumb pipe” business of providing the basic infrastructure for the transmission of data, leaving smaller, nimbler players delivering fancy new digital services to capture the faster-growing and higher-margin bits of the market. Its share price barely changed throughout 2017.
Back then, just a month before Singtel was overtaken by DBS, Sea, another homegrown company, launched its IPO — not on the Singapore Exchange but the New York Stock Exchange.

Last month, another change of guard took place. On May 21, Sea overtook DBS as the most valuable publicly-traded Singapore-grown company. On May 21, Sea was valued at $51.42 billion, versus DBS’ $49.38 billion. As of June 17, the gap has further widened to Sea’s $65.52 billion, versus DBS’ $54.77 billion.

Earlier this year, as markets suffered extreme volatility including the stomach-churning weeks of February and March, Sea hardly missed a beat. It gained 167% year to date to close at US$106.81 ($148.66) on June 17. Its October 2017 IPO was priced at just US$15.

Led by chairman and group CEO Forrest Li, Sea is famous for its Garena digital entertainment services and Shopee e-commerce sites across the region. It was founded just 11 years ago by Li and a group of friends who decided to turn their passion for gaming into a business.

Is Sea as a company really worth more than DBS, a cornerstone of not just Singapore’s banking system but economy?

For the most recent 1QFY2020, DBS reported record revenue of $4 billion, up 13% y-o-y. Earnings before allowances, similarly, hit a record $2.47 billion. However, because of provisions that got to be made, the bottomline came in at 29% lower, or $1.17 billion. In a clear show of balance sheet strength and confidence, it is keeping its 33 cents per share quarterly dividend. DBS is now trading at less than nine times earnings.

Sea, in the same 1QFY2020, reported revenue growth of 58% y-o-y to US$913.9 million. The number of paying users for its gaming business increased by 73% y-o-y to 35.7 million; its e-commerce revenue doubled to US$314 million. Despite the strong topline growth, Sea remains loss-making at US$280.8 million, due to higher R&D and marketing costs, including hiring soccer star Cristiano Ronaldo as a celebrity endorser. Yet, compared to the 1QFY2019 red ink of US$689.6 million, Sea seems to be on the right track.

In a sense, Sea vs DBS reflects the difference in how investors value tech companies versus traditional mainstays. The perception is put into sharper contrast amid the Covid-19 outbreak. The big five US tech stocks — Amazon, Microsoft, Netflix, Alphabet and Apple — are very much behind the growing divergence between Wall Street and main street. Sea is basking in the halo.

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