MAYBANK Securities has raised its target price for the Internet company Sea by 15 per cent to US$110, from US$96 previously, while reiterating its “buy” call on the counter.
The research house forecasts that Sea will achieve its margin targets sooner than previously expected as e-commerce competition remains benign, which will drive monetisation initiatives and advertising growth.
It raised the company’s earnings before interest, taxes, depreciation and amortisation (Ebitda) to gross merchandise value (GMV) margins to 2.7 per cent by 2030, up from 1.9 per cent previously.
Maybank analyst Hussaini Saifee noted that Shopee is “comfortably positioned” to exceed its long-term e-commerce Ebitda to GMV margins target of 2 to 3 per cent.
However, he added that it will likely cap its e-commerce margins to keep the space competitive, maintain its dominant position and counter “aggressive new entrants”.
The research house estimates Shopee’s advertising take-rate to rise to 3 per cent of its GMV by 2028 as advertising growth initiatives are on the rise.
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This may drive 29 per cent of the expected lift in Shopee’s Ebitda margin, in addition to organic growth and ongoing monetisation initiatives.
Also, Shopee’s recent seller take-rate increase and relatively stable costs suggest that its Ebitda margin may expand beyond its management’s long-term target of 2 to 3 per cent of GMV, said Maybank.
Saifee noted that management is likely to keep margins capped at 2 to 3 per cent of GMV while returning excess revenue lift in the form of vouchers, coins or the like, and an even better user experience in the form of faster delivery, cancellation and return policies.
This is mainly to keep operations nimble as well as to thwart the entry of new players and attacks on Shopee’s market share from existing players, he added.
While it expects e-commerce margins to be capped, the research house raised its predictions for Shopee’s digital financial services (DFS) revenue by up to 15 per cent.
“We think monetisation could indirectly come from a larger-than-expected shift from offline to online given Shopee’s scale/ efficiency creating economics for sellers and better experience for users,” Saifee said.
He added that Shopee can leverage DFS to realise part of its e-commerce monetisation as DFS is a derivative of e-commerce that should grow alongside it, and as DFS is “not the first area of attack from a competing e-commerce player”.
Moreover, a pure fintech player would lack the “ecosystem advantage” Sea has, he pointed out.
Saifee notes that Sea is a beneficiary of digitisation in Asean’s under-penetrated e-commerce space.
As the Internet company occupies a dominant e-commerce market share in Asean, he predicts that its Asean GMV will grow at a compound annual growth rate (CAGR) of 15 per cent to 2030.
He also expects Sea’s revenue to grow at a CAGR of 14 per cent, mainly driven by its e-commerce and DFS business arms.
This is on top of estimations for Sea’s Ebitda to grow at a 35 per cent CAGR.
Shares of Sea last closed at US$95.33 on Tuesday.
