SEA Limited (SE) is a leading global consumer internet company founded in Singapore. SEA was initially founded as Garena Interactive Holding Limited – until now a leading global online games developer and publisher company known for its ‘Free Fire’ blockbuster game – before it changed its name to SEA Limited in 2017. The company operates primarily in Indonesia, Taiwan, Vietnam, Thailand, the Philippines, Malaysia, and Singapore.[mepr-active membership=”1734″ ifallowed=”show” unauth=”message” unauth_message=”Please login or purchase a membership to view full text.”]
SEA operates three core businesses across digital entertainment, e-commerce, digital payments, and financial services, known as Garena, Shopee, and SeaMoney. Besides Garena, Shopee is Southeast Asia and Taiwan’s largest pan-regional e-commerce platform. SeaMoney is a leading digital payment and financial services provider in Southeast Asia.
E-commerce Services, SEA’s largest business segment, accounted for 59 percent of the total revenue and grew by 42 percent in 2022. Digital Financial Services contributed only 10 percent to the revenue but increased by a whopping 160 percent last year. Digital Entertainment Services contributed 31 percent to the company’s revenue but shrunk by 10 percent in 2022.
SEA was founded in 2009 and is headquartered in Singapore. The company has been listed on New York’s stock exchange since 2017. SEA’s shares can also be traded in Germany, Mexico, the UK, Brazil, and Argentina. Xiao Dong Li and Gang Ye, the company’s two founders and CEO/COO, own about 31 percent of the company. Sixty-four percent of the shares are in the public hand.
With a workforce of around 60,000 employees, SEA reported revenues of 12.45bn USD and a loss before tax of 1.5bn USD over its FY 2022. This is an increase in revenue of 25 and a reduction of operating losses of about 13 percent, respectively, compared to the same period a year ago. In FY 2021, revenues and losses increased by 128 and 22 percent, respectively. The revenue increase is mainly due to an improved monetization of its digital and e-commerce services. Losses were reduced by the continued efforts to optimize operating costs. SEA’s operating margin is negative and still far from the industry average. SEA’s cash reserves decreased by 35 percent to 6bn USD, while debts and lease obligations have been reduced by one percent to 3.73bn USD over FY 2022.
SEA shows only acceptable financial positions with low profitability and financial strength. The equity ratio is 34 percent, but the gearing, defined here as total liabilities to total equity, is at a high 193 percent. Moody’s daily credit risk score for SEA is 5, indicating a medium, based on the day-to-day movements in market value compared to the company’s liability structure. The next earning results will be announced mid of May 2023.
SEA’s shares seem to have found a bottom in November 2022 at around 41 USD and are forming a cup formation. The crossing of an upturning 200-day moving average is another favorable technical signal. SEA’s shares are already up 66 percent this year. The company is currently priced at nine times its book value. SEA does not pay a dividend. 5 out of 6 analysts currently have a ‘buy’ or ‘outperform’ recommendation on the stock with an average target price of around 100 USD.
Our conclusion: SEA shows only an acceptable financial position with low profitability and financial strength. The high valuation comes with a strong revenue growth rate of 65 percent but only a moderate EBITDA growth rate of 2 percent over the last three years. The outlook for SEA’s three business units remains nevertheless positive.
The company has established itself as a strong brand in Southeast Asia but faces also intense competition in all its business units. The company will still have to spend significant amounts on sales and marketing expenses in this highly competitive environment. Revenue growth is strong, but increasing profit margins in this strong competitive environment will be challenging.
Assuming continued stable economic conditions, we expect nevertheless the share price to increase by another 10 to 15 percent by the end of this year.
AIS Rating: ★★★★☆
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | |
|---|---|---|---|---|---|---|
| EPS (USD) | (2.72) | (2.84) | (3.35) | (3.39) | (3.84) | (2.96) |
| Change (%) | (109) | (4) | (18) | (1) | (13) | (23) |
| DPS (USD) | n/a | n/a | n/a | n/a | n/a | n/a |
| P/E | P/E INDUSTRY |
P/B | P/CF | Equity Ratio* (%) |
ROE (%) |
LIAB./ Equity** (%) |
Div YLD (%) |
|---|---|---|---|---|---|---|---|
| At Loss | 16 | 8.8 | n/a | 34 | negativ | 193 | n/a |
* Equity / Total Assets, ** Total Liabilities / Equity
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