CGS-CIMB analysts Ngoh Yi Sin and Darren Ong are reiterating their “add” recommendation on Sea Limited with a higher target price of US$185.30 ($252.00) from US$158.20 previously as the group contains to gain “strong traction” in its gaming and e-commerce segments.
“While regulatory concerns facing US Internet companies will remain as near-term headwinds, our Raymond James (RJ) US Internet analyst believes these are largely priced in at current levels,” they write in a report dated Oct 7.
“We expect valuation multiples to stay elevated amid a low interest rate environment. Rising competition is another key downside risk. Re-rating catalysts are more gaming hits, faster gross merchandise value (GMV) growth and e-commerce profitability turnaround,” they add.
The way Ngoh and Ong see it, Sea’s launch of Shopee Premium in late Sept 2020 – that includes high-end brands such as Calvin Klein, Sulwhasoo, and L’Occitane listed on the online shopping platform – will increase its customer base, as well as GMV and gross orders.
Following the launch, the group has also stepped up its fees to sellers in some markets such as Taiwan, Vietnam and the Philippines.
As such, Ngoh and Ong forecast Shopee’s GMV to record 45.6% FY19-22F compound annual growth rate (CAGR). The analysts also see Shopee’s take rate to improve from 5.4% in FY19 to 8.0% in FY22F compared to their global peers’ mid-teens.
Sea’s mobile game Free Fire is also doing well. According to data from Sensor Tower, global consumer spending on mobile games continued to climb q-o-q and y-o-y in 3Q2020 even after the easing of lockdowns in some countries.
Garena’s Free Fire also climbed two spots in 3Q2020 to sixth place from eighth in 2Q2020 in terms of revenue on Google Play.
“Given the similarities in genre (Battle Royale), gameplays and popularity, we believe Free Fire is well-positioned to gain from the recent PUBG Mobile ban in India, which saw a surge in downloads shortly after the ban,” say the analysts.
“We project that a 10% market share capture of PUBG Mobile India’s 40 million active users will result in an estimated 1% increase in gaming revenue for Garena. Coupled with the new in-game crossover with Money Heist, recurring esports events, and potential new gaming licences from Tencent, we think these would pose upside to our gaming EBITDA estimates for FY20-22F,” they add.
On May 21, 2020, Sea overtook DBS as the most valuable publicly-traded Singapore-grown company at $51.42 billion compared to DBS’s $49.38 billion.
See: At $65.5 bil, loss-making Sea overtakes DBS in market value
The gap further widened in June 2020 with Sea’s $65.52 billion versus DBS’s $54.77 billion.
Sea Limited gained recognition as the world’s best-performing large-cap stock on Wall Street in August 2020.
See also: The world's hottest stock is a money-losing tech giant soaring 880%
Shares in Sea Limited closed US$167.42 on Oct 7.
See also: DBS and Sea: Two ends of a barbell?
