In a bullish call for 2025, DBS Group Research analysts Sachin Mittal and Nashrullah Putra Sulaeman have crowned Sea Limited as their “top pick” in the e-commerce sector, outshining rivals such as Grab Holdings, GoTo Gojek, and Bukalapak.com.

Why Sea Stands Out

The analysts highlight favorable competitive dynamics in the e-commerce sector for Sea, which owns Shopee, Southeast Asia’s largest e-commerce platform. Unlike Grab, which faces heightened competition in ride-hailing with new entrants such as Lalamove and Bolt in Malaysia, Sea is benefiting from a more stable competitive landscape.

Shopee’s innovations in live commerce and artificial intelligence (AI) are driving its dominance, enabling it to outperform competitors like Lazada. While Lazada reported an adjusted monthly EBITDA breakeven in mid-2024, it saw a 10% drop in gross merchandise value (GMV) in the first half of FY2024. In contrast, Shopee posted an impressive 33% GMV growth, with analysts projecting 20% GMV growth for FY2025, ahead of the market consensus of 17%.

Shopee’s Winning Formula

Shopee’s strategic investments in live commerce and generative AI are paying off:

• Live commerce: Shopee and TikTok Shop are leaving smaller players struggling due to the high investment costs required to compete in this space.
• Generative AI: Shopee is leveraging AI to improve product recommendations, automate pricing, and reduce staffing costs. However, the computing intensity of AI favors large-scale players like Shopee.

Beyond E-Commerce: Free Fire and Fintech Boosts

Sea’s gaming arm, Free Fire, is also regaining momentum. After introducing new features in 2024, Free Fire is projected to achieve 30% year-on-year growth in bookings, while Sea’s fintech business is thriving, thanks to lower funding costs and its position as a preferred lending platform.

Valuation and Target Price

DBS maintains a “buy” call on Sea, raising its target price to US$157 (up from US$126), representing a 48% upside from Sea’s Dec 31, 2024, closing price of US$106.10. Even in a bearish scenario of intensified competition, Mittal forecasts a bear-case target price of US$97.

Despite competition, Sea remains attractively valued compared to Grab:

• EV/Revenue FY2025: Sea trades at 3.1x, a 30% discount to Grab’s 4.4x.
• EV/Adjusted EBITDA FY2025: Sea is at 21x, significantly lower than Grab’s 30x.

Regional Challenges and Opportunities

Grab faces immediate challenges in ride-hailing as new players such as Trans-cab and Geolah in Singapore and EV-focused operators in Indonesia disrupt the market. Rising fuel costs in Indonesia may also push up premium car ride prices, adding to competition concerns for Grab.

On the other hand, Sea’s diversified strategy across e-commerce, gaming, and fintech positions it for sustained profitability and growth in a region where digital adoption continues to accelerate.

Analysts’ Picks for Competitors

While Sea leads the pack, DBS analysts have given mixed ratings for its rivals:

• Grab Holdings: “Hold” with a target price of US$5.16.
• GoTo Gojek: “Buy” at IDR89.
• Bukalapak.com: “Buy” at IDR212.

Outlook

With a projected adjusted EBITDA compound annual growth rate (CAGR) of 42% from FY2024 to FY2026, Sea stands as a robust contender in Southeast Asia’s e-commerce space. Its focus on innovation and competitive pricing, coupled with a strong foothold across gaming and fintech, underscores why analysts see it as a top choice for investors in the region’s evolving digital economy.

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