SEA Ltd: Comprehensive Analysis and Financial Forecast

UOB Kay Hian | Wednesday, 05 March 2025

Company Overview

The report details an in-depth look at SEA Ltd, a prominent player that has built an integrated platform encompassing digital entertainment, e‑commerce, and digital financial services. With a focus on localising its offerings to the specific markets, SEA has consistently demonstrated strong growth dynamics and strategic agility across its diverse business segments.

Stock Data and Market Performance

SEA Ltd currently trades at US\$123.49, with an upward target price of US\$153.11, presenting a potential upside of 24.0%. The company is classified in the Communication Services sector and is identified with the Bloomberg ticker SE US. With 526.8 million shares issued, the market capitalisation stands at approximately US\$70.68 billion. The stock has witnessed robust performance over the past 52 weeks, with the price oscillating between US\$49.76 and US\$139.18. Notably, major shareholders include Forrest Li holding 25.2% and Tencent owning 18.6% of the company.

2024 Results Overview

SEA Ltd reported 2024 revenue of US\$16,820 million, representing a 29% year-on-year increase. This performance was largely in line with forecasts but exceeded estimates in net profit, which surged to US\$444 million, marking an impressive 195% year-on-year growth. The outperformance in earnings was driven by lower-than-expected sales and marketing expenses stemming from easing competition. As a result, the digital entertainment, e-commerce, and digital financial services segments all recorded significant improvements, with the total adjusted EBITDA reaching US\$2 billion – a 66% increase compared to the previous year.

Segment Analysis

Digital Entertainment

This segment has seen dynamic shifts in performance metrics. In 4Q24, digital entertainment posted revenues of US\$519 million, registering a modest quarter-on-quarter growth of 4% and a slight annual increase of 2%. Despite a decrease in user engagement measured by quarterly active users, paying users continue to climb for the fifth consecutive quarter. A noteworthy rise in the paying user ratio by 0.2 percentage points (to 8.2%) and a 2% improvement in average bookings per user (to US\$0.88) underline the steady monetisation progress.

E-Commerce

The e-commerce segment experienced a remarkable turnaround with a positive adjusted EBITDA in two consecutive quarters. In 4Q24, orders reached 3,000 million, and the gross merchandise value (GMV) jumped to US\$28.6 billion, marking notable quarter-on-quarter and year-on-year shifts. Gross orders increased by 7% compared to the previous quarter, while GMV surged by 14% sequentially and 28% on an annual basis. Despite a significant rise in logistics costs by 30% due to higher order volumes, a 3% drop in S&M expenses supported profitability improvements.

Digital Financial Services

The digital financial services segment achieved substantial growth, with revenues climbing to US\$0.7 billion in 4Q24 – a quarter-on-quarter increase of 19% and a year-on-year rise of 55%. The non-performing loan (NPL) ratio improved to 1.2%, and the total credit portfolio expanded by 64% to US\$5.1 billion. The segment comprises US\$4.2 billion of gross loans receivable and an additional US\$0.9 billion from channelling arrangements with other financial institutions. With plans to further penetrate the market, the expansion both on- and off-Shopee is expected to drive additional growth.

Financial Performance and Key Metrics

SEA Ltd has demonstrated a steady upward trend in both top-line and bottom-line metrics. Key highlights include:

• 2024 Net Turnover: US\$16,820 million with projected growth to US\$27,617 million by 2027.
• EBITDA: Increased from US\$662 million in 2024 to a forecasted US\$2,410 million in 2027.
• Net Profit: Adjusted net profit grew from US\$444 million in 2024 to an anticipated US\$1,780 million in 2027.
• EPS: Expected to rise sequentially from 79.6 US cents in 2024 to 285.8 US cents by 2027.
• Valuation Multiples: PE and EV/EBITDA multiples are projected to compress progressively, further enhancing the attractiveness.
• Balance Sheet and Cash Flow: The company maintains strong liquidity with increasing cash and short-term investments, while debt levels remain well-controlled. Shareholders’ equity is anticipated to expand significantly.

Valuation Summary

The report outlines a Sum-of-the-Parts (SOTP) valuation approach to determine a target price of US\$153.11, which is 10% higher than the previous target of US\$138.70. The revised valuation incorporates improved earnings expectations for 2025-26, the inclusion of the net cash position, and enhanced performance across all segments. Detailed SOTP segmentation includes:

• Digital Entertainment: Valued at US\$16.23 per share based on a net profit of US\$1,004 million and an average PE multiple (aligned with peers).
• E-Commerce: A sales-based analysis valued at US\$80.13 per share using a peers’ average Price-to-Sales multiple.
• Digital Financial Services: Valued at US\$44.18 per share based on a net profit figure of US\$1,230 million and corresponding sector PE multiples.
• Net Cash: Adding US\$7,000 million of net cash further enhances the valuation.

Profit & Loss and Forecast Breakdown

The comprehensive forecast spans from 2024 to 2027, illustrating robust growth in key financial metrics:

• Net Turnover: Rising from US\$16,820 million in 2024 to US\$27,617 million in 2027.
• EBITDA and Operating Profit: Expected to increase significantly, with both metrics forecasted to reach approximately US\$2.4 billion by 2027.
• Net Profit: Adjusted net profit is forecasted to surge to US\$1,780 million in 2027.
• Key Ratios: EBITDA margins are anticipated to improve steadily, and net margins are forecasted to reach 6.4% by 2027. Return on equity (ROE) is also expected to climb to 14.4% during the same period.
• Cash Flow: Operating cash flows and net cash positions are robustly expected to strengthen, highlighting the firm’s sound liquidity position and efficient capital management.

Earnings Revision and Risk Considerations

The upward revision in earnings forecasts for 2025 and 2026—51% and 45% respectively—reflects the management’s confidence in the improved growth outlook. The report highlights several key catalysts that underpin this optimism, including:

• Improving market share and margins in core operational countries.
• Enhanced performance in Shopee, with significant GMV and order growth complemented by a reduction in logistics and S&M expenses.
• A bright future for the digital entertainment segment, bolstered by new game launches and high-profile collaborations (such as the Free Fire and Naruto Shippuden IP partnership).
• Expansion of digital financial services, notably the growth in the credit portfolio and the innovative SPayLater product filling a market gap in low credit card usage regions.

Final Recommendation and Target Price

UOB Kay Hian maintains its BUY rating on SEA Ltd. The recommendation stems from the strong earnings outlook, systematic cost improvements, and the company’s ability to generate sustainable growth across all its business segments. With a revised SOTP-based target price of US\$153.11, the stock is well positioned to deliver substantial upside for investors.

Disclosures and Analyst Certification

The report has been prepared by UOB Kay Hian Private Limited. It is intended solely for informational purposes and is not an offer or solicitation to engage in transactions regarding any securities. The analysts have independently produced this research and have no conflict of interest with respect to the recommendations provided in the report. The distribution of this report is subject to applicable regulatory restrictions.

For further details on ownership, analysis updates, and risk disclosures, readers are encouraged to review the complete report, which outlines additional segmentation analyses, detailed financial forecasts, and the underlying methodologies used in the valuation process.