UOB Kay Hian

Wednesday, 14 May 2025

Sea Ltd (SE US): Riding High on Operating Leverage and Digital Growth

Investment Thesis: Maintain BUY Recommendation

UOB Kay Hian maintains a BUY rating for Sea Ltd (SE US), driven by the company’s impressive 1Q25 results and strong performance across all business segments. The target price is set at US\$181.64, reflecting an upward revision based on stronger earnings forecasts. This target price suggests a substantial upside from the current share price of US\$64.46. [[1]]

Company Overview

Sea Ltd operates an integrated platform encompassing digital entertainment, e-commerce, and digital financial services, each tailored to its specific markets. Key stock data includes: [[1]]

• GICS Sector: Communication Services
• Bloomberg Ticker: SE US
• Shares Issued: 521.2 million
• Market Cap: US\$36,533.3 million
• 3-Month Average Daily Turnover: US\$375.4 million

Stock Performance

Sea Ltd has demonstrated robust price performance: [[1]]

• 52-Week High/Low: US\$72.45/US\$34.82
• 1 Month: 21.0%
• 3 Months: 51.0%
• 6 Months: 79.7%
• 1 Year: (24.0)%
• Year-to-Date: 59.2%

Financial Highlights: 1Q25 Results

Sea Ltd’s 1Q25 earnings exceeded expectations, driven by better operating leverage. Key financial figures include: [[1, 2]]

Segmental Performance Analysis

E-Commerce

• Growth: E-commerce saw substantial growth, with a 73.7% QoQ increase. [[2]]
• GMV and Orders: Shopee’s Gross Merchandise Value (GMV) and gross orders reached record highs, increasing by 21.5% and 20.5% year-over-year, respectively. [[2]]
• User Engagement: Average monthly users increased by over 15% year-over-year. [[2]]
• Unit Economics: Improved unit economics, particularly lower logistics costs in Asia and Brazil, boosted segmental margins and profitability. [[2]]
• Ad Revenue: Ad revenue grew by over 50% year-over-year due to higher ad-take rates. [[2]]

Digital Financial Services

• Growth: Digital financial services experienced robust growth, with a 1.6% QoQ and 44.2% YoY increase. [[2]]
• Loan Growth: Monee’s total loans principal outstanding surged by 76.5% year-over-year to S\$5.8 billion. [[2]]
• User Base: Active users for consumer and SME loans grew by more than 50% year-over-year, exceeding 28 million in 1Q25. [[2]]
• Asset Quality: Non-Performing Loan (NPL) ratio remained stable at 1.1%. [[2]]

Digital Entertainment

• Growth: Digital entertainment showed significant growth, with a 58.1% QoQ and 56.8% YoY increase. [[2]]
• User Engagement: User engagement peaked, with quarterly active users up 11.3% year-over-year and paying users up 32.2% year-over-year. [[2]]
• ARPU: Average Revenue Per User (ARPU) improved to US\$1.17 from US\$0.86. [[2]]
• Key Drivers: The collaboration with Naruto Shippuden IP significantly boosted bookings, increasing by 51.4% year-over-year. [[2]]

Management Outlook and Strategic Initiatives

Management has reiterated its confidence in meeting the 2025 guidance. Key expectations include: [[2]]

• Shopee’s Growth: Targeted 20% GMV growth with improving profitability, driven by strong performance in ASEAN markets and Brazil, a robust logistics network, economies of scale, and AI-enhanced ad spending. [[2]]
• Digital Entertainment Expansion: Growth in digital entertainment through a promising game portfolio, including new titles like Free City and Delta Force Mobile, and the second phase launch of the Free Fire and Naruto Shippuden IP collaboration. [[2]]
• Financial Services Growth: Expect loan book size to grow over 20% year-over-year, expanding credit offerings both on- and off-Shopee, leveraging SPayLater as a virtual credit card and ShopeePay to drive user engagement and cross-selling. [[2]]

Earnings Forecast Revision

Earnings forecasts have been revised upward due to improved operating leverage and increased take rates for Shopee. Net profit forecasts for 2025-2027 have been adjusted higher by 121%, 63%, and 35%, respectively. [[3]]

Valuation and Recommendation

The BUY recommendation is maintained with a revised SOTP-based target price of S\$181.64 (previously US\$153.11). This revision reflects a roll-over of the valuation to 2026F and adjustments to earnings forecasts to account for stronger growth in the e-commerce segment. [[3]]

Key Financials

Key financial forecasts are summarized below: [[3]]

Potential Catalysts

• New Game Releases: Successful launches of self-developed games could drive further growth. [[3]]
• Market Share Gains: Higher-than-expected market share and margin improvements in operating countries could positively impact the stock. [[3]]

SOTP Valuation Summary (Revised)

Key Statistics

Profit & Loss Forecast

Balance Sheet Projections

Cash Flow Analysis

Key Metrics