To The Moon

WHY SEA RECENT RALLY IS A SUSTAINABLE LONG TERM BULL RUN.

Hi all fellow traders! I hope you all have benefited from this week SEA rally like me. I will try to keep this short as my detailed explanation post is wipe out by Tiger app on my phone when the market started trading! Arrghh!

1) Reasons for sharp drop in share prices from peak of $357+ per share.

SEA hit an all time high of $357+ per share in November 2021. It is also the all time high of S&P 500. The main reason for it's sharp drop from peak in my opinion other than negative sentiment against growth stocks for boarder markets is the big hit to Garena (SEA digital entertainment arm) in early 2022. India banned Free Fire game of Garena over National security issues in February 2022 and caused Garena revenue to decline by 9% that year.

SEA three main business are Garena, e-commerce platform Shopee and fintech digital wallet Seawallet. It is crucial to understand that in 2021 Garena is second biggest business segment in SEA after Shopee with full year revenue of $4.3 billion. It was up 114% from 2020 and accounts for 43% of the top line of SEA. It is Garena $2.5 billion operating income that is covering the steep losses from the other two main business segments then.Therefore, this ban is a major blow to SEA and it's share prices. However, l believe SEA is well on the road of recovery and stronger than before.

2) Favourable regulatory for SEA now.

Much have been said about the recent social media sales ban by Indonesia. Although, Shopee also use live streaming and short video clips for it's e-commerce platform marketing strategies, they are a more traditional platform that will definitely benefit from an effective ban which will hurt Tik Tok shop more.

I like to point out a previous recent good regulatory news. TechCrunch announced on 31 August 2023 that Garena is relaunching their Free Fire game in India. It is definitely a big lift to see the major driving force of lackluster performance from Garena in the past two years resolved.

SEA fintech arm Seawallet is also doing well as it is based in Singapore which is the financial hub of the region. The regulatory framework is favourable to SEA and they have been granted full digital bank license by MAS ( Monetary Authority of Singapore). They have just provided digital banking services to their merchants and consumers so there is still a great deal of potential in this business segment once they open up their services to the public. 

High interest rates is not a major issue to SEA business because of it's fintech arm which provides help to their partners and stable profits to the company. GAAP for digital financial services is US$427.9 million for Q2 2023, up 53.4% YOY with adjusted EBITDA at US$137 million. SEA also has more than 7 billion in cash and 3 billion in convertible debts on top of strong cash flow. They have the funds to take advantage of any good business opportunities to grow and expand in their industries or brand new businesses.

3) Strong growth is expected for future.

SEA is enjoying favourable market conditions for growth in all three main business segments now. They have demonstrated they have a very capable management team which have achieved profitability in all three business segments in challenging times. This is a viable and growing market leader in it's business industries for South East Asia unlike other tech unicorn.

In Q2 2023, Shopee has gross orders increased by more than 10% QOQ as a result of increase in active buyers and buying frequency. Garena has increased quarterly active users and quarterly paying users of 10.8% and 14.6% respectively. Quarterly active users increased from 491.6 million to 544.5 million. These figures will only exponentially increase with the favourable regulatory environment now for SEA.

4) A very bullish and positive outlook from here into 2024.

Personally, l am very bullish about SEA counter at current prices. The price to sale ratio value is less than 2 and the shares is cheap as well as valuation risk free even with the recent 15% rally from its very strong $34-$36 support levels. There is strong accumulation of the shares even when the board markets are negative for the past two days. There is not even one analyst out of 32 with even a sell call for SEA at current price levels because they know the valuation cannot be much fairer even if they doubt SEA prospects!

I fully expect SEA to be trading at the $50-$60 region at least by the end of this year. SEA is trading at these levels before analysts and investors feel that SEA has missed the 2023 Q2 estimates because they incurred more logistic costs by reinstating the free delivery to gain more customers and retain them. In fact, l see the counter to be testing and breaking the $80+ resistance levels next year before soaring again to the lofty heights of it's all time peak levels. 

The current depressed share prices are due to unwarranted negative investors sentiments which are proven wrong already in my view. SEA is an undervalued as well as oversold market leading company that is prospering in all three major business segments. SEA is definitely a strong buy and long term investment at current prices for my personal portfolio. I hope you do not miss this ride over the moon too!