Shopee parent company SEA 1H23 earnings fell short; Maybank IB notes that weakness may persist and that net profit of USD419m was below consensus FY23 forecasts (at 47%/45%) due to increased investments in its e-commerce) business. growth.
The house said the lacklustre growth will persist due to continued softness in Garena’s bookings and higher investments in the e-commerce business, which will affect SE’s earnings in the near term. And thus reduced the FY23-FY25 net profit forecasts by 27-34%. Nevertheless, Maybank IB maintains a BUY call on the stock,
Near-term uncertainty aside, the house believes SEA is amongst the best geared towards riding the structural wave of ASEAN digitalisation through e-commerce and fintech. Shopee saw healthy momentum with 36% YoY revenue growth in 2Q23 while adjusted EBITDA for e-commerce fell 28% as Sea seeks to boost growth by boosting shipping subsidies and live streams. Management highlighted that the shift to reinvestment could hurt overall profitability and even result in near-term losses. This contributed to a 30% drop in Sea’s share price in US trading Tuesday. Shopee’s current strategy is to refocus on GMV growth to capture longer-term potential in key markets by lifting shipping subsidies and driving higher participation from users through live streams to boost GMV. In our view, live e-commerce will drag down Sea’s profit margins and was likely undertaken to win market share from peers currently still in cost-cutting mode, while also potentially serving as a
deterrent for potential new competitors.
Business unnit, Garena’s bookings fell further to USD443m in 2Q23 (-4.2% QoQ) due to lower monetisation, although adjusted EBITDA improved 4% QoQ to USD239.5m due to a sequential increase in Free Fire bookings, which has higher margins. On the upside, QAU and QPU showed signs of inflection, growing 10.8% and 14.6% QoQ, respectively, after several consecutive quarters of decline. Maybank IB sees green shoots from a rebound in Free Fire’s active user base converting to better monetisation. Meanwhile, DFS adj.EBITDA grew to USD137m (+38% QoQ) with its risk profile remaining stable. Leveraging its ecosystem synergies, Sea plans to collaborate closely with ecosystem partners to drive sustainable growth. FY23E is a year of fine-tuning
The house expects near-term share price volatility as investors lacked visibility on the investment effectiveness and engaging in an intense competition towards aggressive GMV growth. But continue to believe SE remains on strong footing to capture longer term tailwinds from ASEAN digitalisation through rising e-commerce and fintech monetisation, and greater user
engagement in Garena
