CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have kept “add” on Sea Limited with an unchanged target price of US$202 ($280.94).
The analysts’ report, on April 29, came after a consortium led by Sea Limited and YTL Digital Capital were among the five winners of Malaysia’s digital bank licenses announced on the same day.
YTL Digital Capital is backed by Malaysian conglomerate YTL Corp, which has activities spanning across hotels, property, technology, infrastructure and more.
The license makes this the fourth digital bank license secured by Sea to date. The company already has digital banking licenses in Singapore, Indonesia and the Philippines.
Sea has already established strong initial traction in Indonesia. Its digital bank operations, SeaBank Indonesia, has turned profitable since December 2021. Its pre-provision operating profit (PPOP) of 87 billion rupiah is higher than its competitors, supported by its high net interest margin (NIM) of 15%.
In comparison, Sea’s competitors Bank Jago Tbk PT (Arto), Bank Neo Commerce (BBYB) and BCA Digital’s Blu have reported PPOPs of 23 billion rupiah and pre-provision operating losses of 107 billion rupiah and 9 billion rupiah respectively.
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“Leveraging its digital bank licences, we believe Sea can roll out a more comprehensive suite of services for its digital financial services (DFS) segment going forward, including credit services and insuretech,” Ong and Tan write.
“This will allow Sea to better monetise the DFS segment, such as offerings with a higher take rate vs. e-wallet payments. With its rapid scaling of user base, expanding product offerings and enhanced commercialisation, SE expects its DFS segment to achieve positive cashflow by FY2023,” they add.
Given its strong e-commerce leadership in Asean and immense DFS growth, the analysts are positive on Sea’s longer-term potential in the region.
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To them, re-rating catalysts include further commission rate hikes for Shopee and a faster pace of Shopee narrowing losses in the 2HFY2022. Meanwhile, one of the downside risks identified are the reopening of the Southeast Asian economy, leading to near-term topline weakness.
Shares in Sea closed US$11.58 lower or 15.20% down at US$64.62 on May 9.
