Before I start, please also refer to my disclaimer.
SEA LIMITED – LARGEST COMPANY BASED IN SINGAPORE
Sea Limited is the largest company by market cap based in Singapore worth over USD170 billion backed by its largest shareholder Tencent. It is listed in NYSE as SE. For perspective, DBS is the largest company listed in SGX, but is just a third of SEA’s size by market cap.
Unlike China’s tech stocks’ share prices that are suffering from a slew of Chinese regulatory crackdown, Sea with the support of Singapore, is in a complete opposite fortune. Sea has seen its share price surge more than 60% to US$321 a share this year. And in just one month, the share price increase by 19%.
In May, I also gave a preview of SEA Limited. Read : Rolf’s Tech Stock Series – Sea Limited
POSITIVE 2Q2021 RESULTS
Last week, Sea reported her 2nd quarter results with mostly positive news. Read Sea 2Q2021 results here.
- Total GAAP revenue was USD2.3 billion, up 158.6% yoy from USD882 million
- Total gross profit was US$930.9 million, up 363.5% yoy
- Total adjusted EBITDA was US$(24.1) million compared to US$7.7 million for the second quarter of 2020.
Garena, Sea’s Digital Entertainment segment recorded 167% rise in revenue yoy to USD1 billion, while Shopee, Sea’s E-commerce segment saw an equally impressive revenue increase of 161% to US1.2 billion.
Garena is still the main driver of the bottom line with EBITDA rising 70% yoy to reach USD741 million. It’s flagship game Free Fire made more than a billion downloads on Google Play and continue to be the highest grossing mobile game in Southeast Asia, Latin America and India in the second quarter of 2021.
Shopee remains loss making with adjusted quarterly EBITDA of -USD580 million, worsen from negative USD314 million a year back, on the back of higher revenue. However, the loss per order decrease by 20% yoy to 41 US cents compared to 51 US cents a year ago.
Another good news is that Shopee is already profitable in Taiwan and Malaysia, and is gaining traction in Latin America, with Shopee being Brazil most popular shopping app in terms of downloads and time spent on the app, according to App Annie.
Sea’s Digital Financial Services (DFS) also see its mobile wallet total payment volume exceeded USD4.1 billion, an increase of 150% yoy, with quarterly paying users of the services increase to 32.7 million, up 109% yoy.
Sea’s cash and cash-equivalents and short term investments stands at USD5.6 billions as of 2Q2021.
DOWNSIDE RISK
While Garena’s future seems quite impeccably promising, Shopee’s losses is still steep. Basically Garena is subsidising Shopee and DFS’s loss making growth, and any mishap or misses in earnings from Garena will have big negative impact to the business.
The E-commerce business is very competitive and Sea has higher logistic cost having the need to outsource, compared to Amazon and Alibaba who have their own in-house logistic providers.
The recent Chinese crackdown of tech stocks also possibly also give Sea’s share price a boost, and could well turn opposite direction if Chinese tech stocks rejuvenates.
Sea’s share price has already ballooned close to 2000 per cent since inception in Oct 2017.
Current Price to Book is~48x (mrq) and Price to Sales of ~25x (ttm).
For comparison sake, Alibaba has PB~0.44x (mrq), PS~0.57x (mrq), EV/EBITDA of 1.83, and Amazon has PB~15x (mrq), PS ~3.8x (mrq) and EV/EBITDA ~ 29.16.
Sea’s share price is definitely not cheap.
PRICE TO SALES OVER GROWTH
Projected growth of Sea’s revenue (based on 2020 figures) is more than double year over year, giving the PS/growth = 0.25 and less.
Amazon revenue is projected to grow ~15% or less in 2021 and 2022, giving PS/growth of 0.25 or more.
https://www.statista.com/statistics/745091/annual-net-revenue-of-amazon/
Alibaba revenue is projected to grow more than ~55% in 2021, giving PS/growth of 0.01 or less.
https://www.macrotrends.net/stocks/charts/BABA/alibaba/revenue
Even with the potential growth, Sea’s share price is still not cheap.
FINAL THOUGHTS
So the million dollar question, should I buy into Sea Limited now? Ok, please read my disclaimer again.
In my opinion, the fundamentals of Sea for more growth is still sound. If Shopee become profitable one day, the Stock will rise to the next level. Questions is when, or will it happen?
With all said, the Sea’s stock is definitely not cheap at current pricing. Also beware of how the Fed’s decision on tapering may affect the stock’s share price.
For me, I am invested in Sea Limited as one of my large holdings and I will continue to hold on to the stock and not sell despite the current paper profits.
