Overview of Sea Limited

Sea Limited, a leading player in the communication services sector, operates an integrated platform consisting of three core segments: digital entertainment, e-commerce, and digital financial services. The company tailors its offerings to meet the unique characteristics of its diverse markets, ensuring a localized and customer-centric approach.

The stock is currently rated as a “BUY” with a target price of US\$138.70, reflecting an upside potential of 17.8% from its current share price of US\$117.79. The company has a market capitalization of US\$67.4 billion, with major shareholders including Forrest Li (25.2%) and Tencent (18.6%).

4Q24 Results Preview

Sea Limited is expected to release its 4Q24 financial results in the first week of March 2025. The estimated net profit for 4Q24 is projected between US\$200 million and US\$210 million, with the full-year net profit forecasted at US\$407 million to US\$417 million. These results are anticipated to exceed the analysts’ forecasts by 13-16% but fall short of consensus estimates by 15-17%.

The 4Q24 performance is expected to reflect growth across all segments, albeit with some impact from forex headwinds. This strong quarter is attributed to increased gross merchandise value (GMV) and higher digital entertainment bookings during the festive season.

Segment-Wise Analysis

Shopee: E-Commerce Growth

Shopee, Sea’s e-commerce arm, is expected to report robust GMV and EBITDA growth for 4Q24. The platform has maintained its market leadership despite intensifying competition. Key drivers include:

• Higher take rates, supported by monetization initiatives like increased advertising placements.
• A projected 25-26% year-on-year GMV growth for 2024.
• Ongoing investments in Brazil to strengthen market share and expanded logistics coverage through SPX Xpress.

Garena: Digital Entertainment

Garena, Sea’s digital entertainment division, continues to engage users effectively. Highlights include:

• Free Fire ranked as the most downloaded mobile game globally in November and December 2024, with 25 million and 35.2 million downloads, respectively.
• Localized experiences and events, such as Free Fire’s 7th anniversary celebration, have driven user engagement.
• While 4Q24 bookings are expected to grow year-on-year, a slight quarter-on-quarter decline is anticipated due to the strong performance in 3Q24.

Looking forward, Garena has launched a collaboration with the popular anime Naruto Shippuden and soft-launched a new game, Garena Free City, in Argentina. The global release of this game poses potential upside risks.

SeaMoney: Digital Financial Services

SeaMoney, the company’s digital financial services segment, is expected to demonstrate strong loanbook growth. Key factors include:

• A 73% year-on-year growth in the loanbook in 3Q24, with non-performing loans remaining low at 1.2%.
• Increased adoption of credit services and other product offerings, leveraging synergy with Shopee.
• Healthy growth across all markets and product segments.

Financial Performance and Key Metrics

Sea Limited’s financial performance reflects steady growth across all segments. Below are key highlights:

• 2024F Net Turnover: US\$16.6 billion (27% year-on-year growth).
• 2024F EBITDA: US\$529 million, a significant improvement from US\$225 million in 2023.
• 2024F Net Profit: US\$360 million, more than double the US\$169 million achieved in 2023.
• 2024F EPS: 58.4 cents, compared to 30.4 cents in 2023.

Sea Limited’s financial health is further supported by a strong balance sheet, with a forecasted net cash position of US\$7.6 billion in 2024.

Stock Impact and Future Outlook

Sea Limited is poised for another year of growth in 2025, driven by sustained investments and strategic initiatives:

• Shopee: Further monetization through commission and ad take rate hikes, alongside geographical expansions in Brazil and Asia.
• Garena: Enhanced user engagement through new games and content, such as the Naruto Shippuden collaboration.

The company’s valuation is based on a sum-of-the-parts (SOTP) method, assigning a 9.0x 2025F PE for digital entertainment, a 3.0x 2025F PS for e-commerce, and a 20x 2025F PE for digital financial services. The target price remains at US\$138.70.

Conclusion

Sea Limited’s diversified business model, market leadership, and strategic investments position it for steady growth across its core segments. The company continues to capitalize on its strengths in digital entertainment, e-commerce, and financial services, making it a compelling investment opportunity with a “BUY” recommendation and significant upside potential.