Driving sustainable growth
? 4Q21 results dragged by weaker Garena performance; bookings guidance for FY22F disappointed on post-Covid-19 normalisation and FF’s India woes.
? On the positive side, SE guided for stronger Shopee and SeaMoney growth, and aims for Shopee to turn EBITDA positive in ASEAN & Taiwan by FY22F.
? Reiterate Add with a lower SOP-based TP of US$202.
4Q21 results below expectations
SEA Ltd’s (SE) 4Q21 adjusted revenue of US$2.9bn (+3% qoq, +53% yoy) was 4% below our expectations, mainly due to lower bookings from gaming unit Garena which suffered from moderation of gaming activities with economic reopening. 4Q21 adj. LBITDA of US$492m (4Q20: adj. EBITDA of S$49m) also fell short of estimates due to lower gaming segment margins, given higher spend to drive gamer engagement. FY21 core net loss made up 98%/100% of our/Bloomberg consensus forecasts.
Positives: driving sustainable growth; bright Shopee outlook FY22F
SE outlined plans to drive sustainable growth: 1) Shopee to achieve positive EBITDA in Southeast Asia and Taiwan by FY22F, 2) SeaMoney to achieve positive cash flow by FY23F, and 3) cash generation by Shopee and SeaMoney to enable both businesses to self-fund longer-term growth by FY25F. The targeted pace of narrow ing losses for both Shopee and SeaMoney exceeded our expectations. SE also provided strong revenue growth guidance for Shopee and SeaMoney for FY22F. Shopee is expected to record US$8.9bn-9.1bn GAAP revenue for FY22F (+76% yoy at midpoint), significantly higher vs. our/Bloomberg consensus’ expectations of US$8.2bn-8.5bn. SE also provided revenue guidance for SeaMoney for the first time – the range of US$1.1bn-1.3bn (+155% yoy at midpoint) w as also above our/Bloomberg consensus’ expectations of US$1.0bn.
Negatives: Gaming a weak spot
FY22F bookings guidance for Garena w as w eak at US$2.9bn-US$3.1bn (-30% yoy at midpoint), on the back of 1) continued normalisation in gaming activities as economies reopen, and 2) uncertainties arising over Free Fire (FF) ban in India. The guidance was significantly below our/Bloomberg consensus’ expectations of US$4.5bn/US$5.1bn. Nevertheless, with strong cash on hand of c.US$10bn, SE believes it has the financial resources required to fund growth of Shopee and SeaMoney over the coming years
without having to rely heavily on Garena’s cash generation.
Reiterate Add with lower TP of US$202
While the w eaker gaming guidance for FY22F is likely to cause near-term pressure on SE’s share price, Shopee’s earlier-than-expected path to profitability in Southeast Asia/Taiwan and strong growth outlook reinforce our confidence in SE’s longer-term potential. Maintain Add. Our SOP-based TP is lowered to US$202 on the back of EPS cuts and lower target multiple for the gaming segment (10x FY23F P/E). Re-rating catalysts: further commission rate hikes for Shopee and positive updates on Free Fire India. Downside risks: execution risk in new markets