E-commerce players hit STOP on discounts
- E-commerce players are discouraging small basket purchases in pursuit of profitabilty; likely to benefit physical stores
- We prefer Sea Ltd. (SE) to Grab Holdings (GRAB) for earlier adjusted EBITDA breakeven; SE’s FY23F guidance in Feb-Mar 2023 to dictate the stock price
- Sheng Siong (SSG) and Mitra Adiperkasa (MAPI) are our top picks among physical store
Consumers might switch back to physical stores for smaller basket size. E-commerce players are charging higher delivery rates from consumers in view of mounting logistics costs. In addition, product prices on e-commerce sites have also gone up as e-commerce players are charging higher commissions from merchants as well. This encourages users to visit physical stores for 10%-30% savings on smaller basket size. Cashback vouchers, used to offset delivery charges earlier, have also largely ceased as e-commerce players pursue profitability. eMarketer forecasts retail e-commerce sales CAGR of 13.5% in Southeast Asia over 2022-24, less than one-third of 41% seen over 2019-21, while offline retail sales could witness 6% CAGR over 2022-24.
We prefer SE to GRAB for its earlier adj EBITDA breakeven projections than GRAB. SE aims to achieve EBITDA breakeven in 12-18 months compared to GRAB’s 24 months projection. In terms of timing. SE’s 4Q22F results coupled with FY23F guidance in Feb-Mar 2023, will dictate the stock price. We project SE to achieve adj EBITDA breakeven in 18-24 months so there could be a room for positive surprise. We lower our TP for SE to US$100 (prev US$126) and for GRAB to US$2.58 (prev US$2.85) as we trim our FY27F EBITDA on lower revenue growth projections.
Among the physical stores, we like Mass Grocery Retail (SSG) and MAPI for retail. Our preference is for mass grocery retailers in Singapore (SSG). SSG is likely to experience a second wind in its sail with the shift towards home dining on rising cost of living, its heartland store proposition and its strong balance sheet. MAPI is well positioned to be more resilient against inflation since it targets the middle- to upper-income earning consumers. Furthermore, MAPI offers a more diversified portfolio, which includes its active, F&B, and Digimap divisions.