DBS Group Research analysts Sachin Mittal and Nashrullah Putra Sulaeman have named Sea Limited as their “top pick” within the e-commerce sector over other counters such as Grab Holdings, GoTo Gojek and Bukalapak.com.
This comes as the analysts see tailwinds from benign e-commerce competition for Sea versus a short-term spike in competition for Grab in Southeast Asia.
Malaysia has welcomed two new ride-hailing entrants, Lalamove and Bolt, while Singapore has Trans-cab and Geolah. Indonesia has also seen the entry of electric vehicle (EV) players committed to expanding EV charging stations in a “big way” thanks to the Lippo Group. Running premium car services may also increase in Indonesia due to a 15% to 20% rise in fuel costs, making rides in this segment more expensive.
Meanwhile, the e-commerce sector saw its major players increasing their take-rates in September 2024, indicating significant potential for improvement in e-commerce profitability. Sea’s e-commerce arm, Shopee, holds the top market position in Southeast Asia.
In the analysts’ view, Shopee is set to benefit from its investments in live commerce and artificial intelligence (AI) as it gains market share from smaller players such as Lazada, which is the third-largest player in the e-commerce sector. Even though Lazada achieved an adjusted monthly ebitda breakeven in July 2024, this came after a 10% y-o-y decline in gross merchandise value (GMV) in the 1HFY2024 compared to Shopee’s 33% growth.
To the analysts, the smaller players are struggling to keep up with the live-commerce offerings by Shopee and TikTok Shop, which require high investment costs. The integration of generative AI will also bring about market share gains and reduced staff costs thanks to automated product recommendations and adjusted pricing on the platform. However, the high computing cost of AI will only favour large-scale players such as Shopee.
“We project 20% GMV growth for Shopee in FY2025 (versus consensus’ 17%) after 27% growth in FY2024,” the analysts write.
In a separate report dated Jan 3, Mittal also notes renewed growth by Sea’s Free Fire after its new features were introduced in April 2024.
“SE expects Free Fire to grow its bookings by under 30% y-o-y in FY2024, aided by new features in January and April 2024. Fintech will also see solid growth from lower cost of funding for its lending business, as Sea becomes a preferred lending platform,” he writes.
The analyst has kept his “buy” call on Sea with a higher target price of US$157 ($215.05) from US$126 previously, representing an upside of 48% to Sea’s closed price of US$106.10 as at Dec 31, 2024. Despite that, Mittal has given Sea a bear-case target price of US$97, assuming an irrational e-commerce competition in FY2025.
Mittal and Nashrullah have also given Grab, GoTo and Bukalapak “hold”, “buy” and “buy” calls respectively with unchanged target prices of US$5.16, IDR89 (0.75 cents) and IDR212.
That said, Sea is projected by the consensus to have an adjusted ebitda compound annual growth rate (CAGR) of 42% over FY2024 to FY2026 versus Grab’s 59%.
“In terms of FY2025 enterprise value (EV)/revenue metrics, Sea is trading at [around] 3.1 times, at a 30% discount to Grab’s 4.4 times compared to the last two-year average of 32%. Sea’s 21 times FY2025 EV/adjusted ebitda is also attractive compared to Grab’s 30 times,” the analysts write.
