not vested
INITIATE COVERAGE HOLDShare Price US$60.65
Target Price US$58.77
Upside -3.1%
COMPANY DESCRIPTION
Major Shareholders %
Forrest Li 25.2
Tencent 18.6
FY22 NAV/Share (US$) 9.03
FY22 Net Cash/Share (US$) 9.38
Testing Times For Key SegmentsShare price has recovered about 50% after a narrower net loss in 3Q22 but we are
doubtful that huge profitability could be attained with slower growth from the digital
entertainment and e-commerce segments.
We are also cautious on the risks of potential divestment by major shareholder Tencent and the huge amount of convertible notes in 2025-26.
However, Shopee’s dominant market share in ASEAN could allow it to leverage
on higher growth opportunities.
Initiate coverage with HOLD. Target price: US$58.77.
Huge amount of convertible notes due in 2025-26 puts Sea’s financial strength at risk.By end-25, Sea would have US$1.1b worth of convertible notes due (at a convertible price of US$90.46/share). In the following year, another US$2.9b would be due (convertible price of US$477.01/share).
With these two convertible notes totalling US$4.0b being way out of the money, Sea’s adjusted net cash position as of 3Q22 is only around US$3.1b, after deducting
US$4.2b from its total cash position of US$7.3b. To recap, Sea’s net cash outflow for 9M22 alone already reached US$3.2b. Even at a reduced burn rate from 2023 onwards, Sea’s financial strength is weaker than it appears.
Source: UOBKH
https://research.uobkayhian.com/content ... 34957cfbd5
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