Analysts from Maybank Securities and UOB Kay Hian remain optimistic on Sea after major shareholder Tencent announced a decision to reduce its stake in the company from 21.3% to 18.7% on Jan 4.
See: Tencent sells a stake in Sea for US$3 billion
Maybank Securities and UOB Kay Hian both retained their “buy” calls for the counter, with unchanged target prices of US$379 ($515.38) and US$370.76 respectively.
Maybank Securities analyst Gene Lai and UOB Kay Hian analyst Clement Ho both note that the stake sale is unrelated to Sea’s fundamentals.
“We view the move by Tencent as an attempt to reduce its control in various businesses, to avoid allegations of potential manipulative activities by the Chinese government,” writes Ho in a Jan 7 research note.
Meanwhile, Lai notes that Tencent will continue to participate in Sea’s growth. “Tencent intends to use the proceeds raised to fund other investments, while retaining a majority of its stake to benefit from Sea’s future growth. Tencent is also restricted from selling further Sea shares for the next 6 months,” he notes in a Jan 5 research note.
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Both analysts also highlight the fact that the correction in Sea’s share price following Tencent paring down its stake follows a wider decline in the last quarter.
Lai points out that Sea’s share price declined by 39% in the past three months, underpinned by concerns over normalising growth for Garena Free Fire, as well as a rotation away from pre-earnings growth stocks.
He also anticipates further volatility in the near term. “We believe a near-term risk to the share price is wider-than-expected losses, especially as Sea deploys the US$6 billion it raised in 2021 to fund growth,” he remarks.
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For Ho, the share price correction comes on the back of the increasingly hawkish stance by the US Federal Reserve and the Chinese government tightening policies in the e-commerce industry.
He points out that other listed big tech companies saw similar share price declines. “Sea and its Asean e-commerce peer, Bukalapak.com, have lost 30-49% in 4Q2021. Similarly, Grab lost 45% from its IPO price of US$13.05 since listing on Dec 2 till Dec 31,” he remarks.
Despite the share price performance, both analysts remain optimistic on Sea’s long-term prospects.”We deem the recent price action to be healthy, and firmly believe that the growth momentum for Sea’s main revenue driver, gross merchandise value (GMV), to continue going forward,” Ho says.
“Shopee is the undisputed leader in the region with 21.7% market share, followed by Lazada’s 8%. We firmly believe that the growth momentum for Sea can continue going forward,” he adds.
Maybank’s Lai also reiterates his optimism for Sea, noting that its long-term growth prospects remain given Shopee’s position as Asean’s top e-commerce player. He also highlights that growth from Garena mobile game Free Fire is expected to normalise, new iteration Free Fire MAX is anticipated to continue delivering growth, largely from new markets.
Shares in Sea closed up US$8.04 or 4.35% higher at US$192.76 on Jan 6.
Photo: Sea
