(Nov 29): A return to profitability in e-commerce for Sea Ltd has analysts turning even more bullish on its stock, after a rally that has added US$43 billion (RM190.9 billion) to its market value so far this year.

At least seven firms, including Morgan Stanley and Deutsche Bank, have raised their target prices for Sea’s US-listed shares since its earnings report earlier this month. The consensus view calls for another 7% rise over the next 12 months.

Analysts expect adjusted profits for Southeast Asia’s top online-shopping company to nearly triple this year and rise by a similar measure again in 2025. Singapore-based Sea’s latest quarterly results showed it’s successfully fending off e-commerce rivals, while its game business has been resilient.

“Sea is a solid play in Asean, with improving execution of profitable growth,” Morgan Stanley analyst Divya Gangahar Kothiyal wrote in a note. Competition in regional e-commerce has been stable, while Sea also got boosts from its Brazil and livestreaming operations, plus higher merchant commissions, she said.

The 186% gain in Sea’s American depositary receipts this year tops the MSCI Singapore Index, which is mainly comprised of locally-listed stocks. The run-up in the stock had stretched valuations to expensive levels, putting pressure on Sea to post good results.

Analysts were indeed impressed, with their average target price rising 21% since the earnings announcement. The options market is showing reduced anxiety as well, with the cost of Sea hedges dropping after a spike in August.

“Sea’s profit is set to expand further, as recovery in its game-publishing business adds to improving bottomline in its e-commerce unit Shopee,” Bloomberg Intelligence analyst Nathan Naidu wrote in a note. Future catalysts include a games tie-up with Tencent Holdings Ltd, in-house e-commerce logistics, and larger loans to quality borrowers in fintech, he added.

Even with the big recent gains in Sea’s ADRs (American Depositary Receipts), they’re still down nearly 70% from their pandemic-driven peak in 2021. In addition to worries over e-commerce profitability, Sea’s games business has been seen as overly reliant on ageing hit title Free Fire, which was originally released in 2017.

These concerns have also been allayed to some extent. Free Fire has seen at least a temporary “resurgence”, while management highlighted progress on new games in its earnings call, Deustche Bank analyst Peter Milliken wrote in a report.

“Sea’s efforts to keep one eye on holding or gaining share, and one eye on profitability, continue to succeed,” Milliken said. “Importantly, the company is becoming less of a gaming company that funds other developing businesses, and has moved towards (being) a company with three profitable units.”

Uploaded by Liza Shireen Koshy