Wednesday, June 29th, 2022

SEA Ltd: potential MSCI index inclusion

SEA Ltd’s FY21F Kick-off

We expect strong 1Q21F results, with adjusted revenue of US$2.1 billion (+131 percent year over year) and positive EBITDA of US$185 million.

Shopee is promoting monetisation by rising commission rates for its marketplace platforms, while Free Fire maintains leadership positions in key areas.

The year is off to a great start. SE is expected to generate adjusted sales of US$2.1 billion in 1Q21F, up 5% quarter over quarter and 131 percent year over year, thanks to continued growth in all three core sectors. We predict that Garena received US$1.05 billion in bookings (+4% qoq, +105 percent yoy), aided by the continued popularity of Free Fire. Despite 4Q being a historically strong quarter for e-commerce, we expect Shopee to show sequential rise in adjusted revenue in 1Q21F to US$1.00 billion (+5% qoq, +220 percent yoy). SE is expected to generate adjusted EBITDA of US$185 million (+279 percent qoq) thanks to a higher Shopee take rate and lower sales and marketing spend.

Garena: The unrestricted firing continues.
We estimate that Garena grew its paying user base by 107 percent year over year in 1Q21, owing to a 53 percent increase in active users and a 12.1 percent increase in the paying ratio (1Q20:8.9 percent ). Free Fire continued to build its player base in new territories while maintaining its position as the top grossing game in key areas (India, Indonesia, and Brazil). Free Fire surpassed PUBG Mobile as the most popular mobile battle royale game in the United States in 1Q21, according to SensorTower. We anticipate the release of Free Fire Max (a self-developed game that is an upgraded version of Free Fire) later this year.

In our opinion, the game’s improved graphics and animation will allow Garena to better penetrate industrialized countries and extend its gamer base.

Shopee is a platform that helps people make money online.

Shopee continues to benefit from the region’s robust e-commerce growth – we estimate Shopee’s GMV increased by 100% yoy to US$12.4 billion in 1Q21, and its take rate increased to 8.1 percent (1Q20: 5.1 percent ). We predict that FY21 will be Shopee’s year of driving monetisation. Its marketplace commission has been increased in Indonesia beginning April 21, and it will be increased in Malaysia from June 21 onwards. We further believe that EBITDA loss per order fell to US$0.30 in 1Q21F, helped by greater monetisation efforts (Q20: US$0.60 EBITDA loss per order).

We see sustained tailwinds for faster digital demand development in the ASEAN region, which could benefit SE, with the recent recovery in Covid-19 cases in the area. Add using the same SOP-based TP of US$315 as before.

Potential MSCI index inclusion and further e-commerce growth are two re-rating triggers.
Execution risk in new company endeavors and marketplaces is one of the downside risks.

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