Sea Limited (SE US): 1Q25 Earnings Beat, Target Price Raised – UOB Kay Hian Analysis

UOB Kay Hian

Wednesday, 14 May 2025

Sea Ltd (SE US): Strong Earnings from Better Operating Leverage; Target Price US\$181.64

Company Overview

Sea has developed an integrated platform consisting of digital entertainment, e-commerce, and digital financial services, each localised to meet the unique characteristics of its markets. [[1]]

Stock Data

• GICS Sector: Communication Services [[1]]
• Bloomberg ticker: SE US [[1]]
• Shares issued (m): 521.2 [[1]]
• Market cap (US\$m): 36,533.3 [[1]]
• 3-mth avg daily t’over (US\$m): 375.4 [[1]]
• 52-week high/low: US\$72.45/US\$34.82 [[1]]

Price Performance (%)

• 1mth: 21.0 [[1]]
• 3mth: 51.0 [[1]]
• 6mth: 79.7 [[1]]
• 1yr: (24.0) [[1]]
• YTD: 59.2 [[1]]

Major Shareholders %

– – [[1]]

FY24 NAV/Share (US\$)

14.00 [[1]]

FY24 Net Cash/Share (US\$)

8.77 [[1]]

Recommendation

Maintain BUY with a higher target price of US\$181.64 on the back of stronger earnings from all segments. [[2]]

1Q25 Results: Outperformance Driven by Strong Performance Across All Segments

Driven by better operating leverage, SEA’s 1Q25 earnings of S\$403m beat estimates as all business segments showed robust revenue growth and better earnings profiles. Management reiterated confidence in the group’s ability to meet its 2025 guidance. [[1]]-[[2]]

Key Financial Highlights (1Q25)

SEA Limited (SEA) reported its 1Q25 results. [[2]] 1Q25 revenue of S\$4,841m (+29.6% yoy), adjusted EBITDA of S\$920m (+22.8% yoy) and PATMI of S\$403m (1Q24: S\$24m PATMI loss) all exceeded expectations, driven by strong broad-based segmental performance and better operating leverage. [[2]] As a result, 1Q25 overall gross margins (+4.6ppt yoy) and adjusted EBITDA (+15.6ppt yoy) margins expanded yoy. [[2]]

• Revenue: S\$4,841m (+29.6% yoy) [[2]]
• Gross Profit: S\$2,236m (+43.9% yoy) [[2]]
• Adj. EBITDA: S\$920m (+22.8% yoy) [[2]]
• PATMI: S\$403m (Above expectations) [[2]]
• Gross Margin (%): 46.2% (+4.6ppt yoy) [[2]]
• Adj EBITDA Margin (%): 19.0% (+15.6ppt yoy) [[2]]

Segmental Performance

• Digital Entertainment: S\$458m (+56.8% yoy) [[2]]
• E-Commerce: S\$264m (n.a. yoy) [[2]]
• Digital Financial Service: S\$241m (+44.2% yoy) [[2]]

Key Financials

The following table summarizes the key financials of SEA Ltd:

Segmental Adjusted EBITDA Performance (4Q24)

• E-commerce (+73.7% qoq, +S\$286m yoy): Record-high GMV. [[2]] 1Q25 was a stellar quarter whereby both Shopee’s gross merchandise value (GMV) (+21.5% yoy) and gross orders (+20.5% yoy) were at record highs. [[2]] 1Q25 average monthly users increased by more than 15% yoy, given that the festive period was scheduled earlier yoy. [[2]] Shopee’s unit economics also continued to improve in 1Q25, resulting in lower overall logistics costs in Asia and Brazil which led to better segmental margins and profitability. [[2]] Ad revenue also grew by more than 50% yoy, driven by higher ad-take rates for the quarter. [[2]]
• Digital Financial Services (+1.6% qoq, +44.2% yoy): Robust growth. [[2]] Monee’s total loans principal outstanding grew sharply by 76.5% yoy to S\$5.8b (4Q24: S\$5.1b, 1Q24: S\$3.3b) across key markets, led by both on- and off-Shopee growth. [[2]] Also, consumer and SME loans active users grew by more than 50% yoy, exceeding 28m in 1Q25. [[2]] NPL was stable qoq at 1.1% (4Q24: 1.2%, 1Q24: 1.4%). [[2]]
• Digital Entertainment (+58.1% qoq, +56.8% yoy): Back to COVID-19 times. [[2]] User engagement peaked in 1Q25, with both the number of quarterly active (+11.3% yoy) and paying users (+32.2% yoy) higher. [[2]] This resulted in 1Q25 paying user ratio increasing 1.6ppt yoy to 9.8% and ARPU improving to US\$1.17 from US\$0.86. [[2]] The outperformance was primarily led by Free Fire’s highly-anticipated successful collaboration with Naruto Shippuden IP, resulting in a 51.4% yoy increase in bookings. [[2]]

Stock Impact: Reiterated 2025 Outlook

Expectations are that SEA’s significant improvements in 2025 earnings would come from: [[2]]

• Targeted 20% GMV growth and improving profitability for Shopee in 2025. [[2]] This will be backed by impressive performance in key ASEAN markets and Brazil, a strengthening logistics network, improving economies of scale and better revenue generation with the integration of AI to bolster seller ad spend. [[2]] Also, a more benign competitive landscape would lead to lower sales and marketing expenses, protecting margins in 2025. [[2]]
• Growth in digital entertainment. [[2]] This will be driven by: a) a promising game portfolio, with anticipated launches during the year including titles such as Free City and Delta Force Mobile, and b) an expected phase 2 launch of high-profile collaboration Free Fire and Naruto Shippuden IP in 2H25, which has seen strong positive response from users thus far. [[2]]-[[3]]
• Expect loan book size to grow >20% yoy, as management expands its credit offerings both on- and off-Shopee. [[3]] With credit card usage remaining low in most of its markets, management believes its SPayLater product serves as a virtual credit card to fill the market gap while its ShopeePay app would help drive user engagement and lay a strong foundation for future cross-selling of financial products and services. [[3]]

Earnings Revision/Risk

Earnings forecasts have been revised upward, on the back of improved operating leverage and increased take rates for Shopee. [[3]] 2025-27 net profits higher by 121%/63%/35% respectively have been adjusted. [[3]]

Valuation/Recommendation

Maintain BUY with a 19% higher SOTP-based target price of S\$181.64 (previous: US\$153.11), after rolling valuation to 2026F and adjusting earnings forecast to reflect stronger growth from the e-commerce segment. [[3]]

Share Price Catalyst

• New release of self-developed games. [[3]]
• Higher-than-expected market share and margin in the operating countries. [[3]]-[[4]]

SOTP Valuation Summary (Revised)

SOTP Valuation Summary (Previous)

Key Statistics

Profit & Loss

Balance Sheet

Cash Flow

Key Metrics