Southeast Asian internet giant Sea (SE.US) and the troika join forces, UBS holds a bullish flag

The Zhitong Finance App learned that the major international bank UBS (UBS) continued to be optimistic about the prospects on the eve of Sea Ltd (SE.US)'s earnings report for the second quarter of 2025, maintained a “buy” rating for the Southeast Asian internet giant, and reiterated its target share price of 200 US dollars. Compared to the closing price on July 29, the target share price means a potential bull market increase of about 24% over the next 12 months. This optimism stems from UBS's confidence in the continuous improvement of Sea's core business: e-commerce competition is becoming more rational, profit margins are increasing, and the digital finance and gaming sectors are showing steady growth potential. UBS stressed that the company's current valuation level will be rapidly digested as earnings grow. Maintaining a bullish rating and giving a high target price reflects its optimistic expectations for Sea's subsequent performance and valuation expansion.

In terms of the core reason for being bullish on this Southeast Asian internet giant whose business scope covers gaming, e-commerce, and digital finance, UBS pointed out that the improvement in the regional e-commerce competitive environment is one of the important favorable factors. In particular, the price war in the Southeast Asian e-commerce market where Shopee is located is slowing down, which means Sea is expected to maintain a leading growth rate without sacrificing profit margins.

At the same time, UBS pointed out that Sea's three major sectors have formed a synergy: the e-commerce business is contributing to rapid growth, digital financial services are expected to become a new profit engine, and the gaming platform business provides stable cash flow support. This diversified business structure, combined with management's continued cost control, convinced UBS that Sea will achieve profitable leaps and bounds in the next few years. As a result, UBS remained optimistic and reiterated expectations for Sea's core investment logic and valuation expansion before the earnings report was announced.

Is Sea on the fast track to profit?

In the research report, UBS provided Sea Ltd with detailed financial fundamental forecasts and valuation estimates for the next few years. In terms of revenue, UBS expects Sea's overall revenue to continue to grow rapidly: from US$12.701 billion in 2023 to US$21.679 billion in 2025, further exceeding US$28.839 billion in 2027. This revenue growth is mainly driven by e-commerce and financial businesses, and is complemented by steady contributions from the gaming business.

In terms of profitability, Sea has turned a loss into a profit since 2023. UBS expects the company's EBIT to jump to US$3.51 billion in 2025 after reaching US$1,572 billion in 2024, and further increase to US$3.725 billion in 2026. Corresponsibly, earnings per share (EPS) are expected to rise sharply from about $1.83 in 2024 to $4.11 in 2025 and reach $5.63 in 2026, showing a trend of rapid profit release. Indicators such as net profit margin and ROIC are also improving at the same time — UBS estimates that SEA's ROIC (return on invested capital) will increase from about 5.8% in 2023 to around 14% in 2025, and is expected to reach more than 20% by 2027, reflecting a significant increase in the company's return on investment efficiency.

In the research report, UBS compared Sea with comparable global e-commerce and internet leaders. The research report mentioned that if compared horizontally to its Internet peers in Asia and Latin America (such as e-commerce platforms and game companies), SEA's current EV/EBITDA of more than 20 times and a forward price-earnings ratio of around 30x are at a lower average valuation level during the high growth period for similar high-growth Internet companies and Internet giants. Combined with Sea's annual performance growth expectations of more than 30% over the next few years and stronger profit growth expectations, UBS Sea believes that the current valuation is very attractive.

UBS's core bullish logic for Sea fundamentals and valuation can be summed up as “leading position+rational competition+diversified growth”. First, as the e-commerce leader in Southeast Asia, Shopee benefits from increased e-commerce penetration and slowing competition, and can outperform the continuous growth of the market; secondly, the overall market competition environment tends to be rational, avoiding destructive price wars, enabling Sea to seize growth and protect profits; third, the three major businesses within Sea complement and promote each other, creating an ecological moat that is difficult to replicate throughout the Southeast Asian Internet sector. Under this logic, UBS believes that Sea is expected to achieve rapid revenue and profit growth in the next few years and significantly increase shareholder return (the research report predicts a return on investment of about 24% over the next 12 months).

The troika works together to push Sea towards a stronger growth curve

Through price tracking, UBS discovered that competition among major e-commerce platforms in Southeast Asia is becoming more rational. According to UBS survey data, the price gap between Shopee and TikTok Shop is gradually narrowing because TikTok Shop has reduced one-time large discounts for new users and is no longer simply using subsidies to seize the market. This means that the entire market's subsidy war has abated, and players have begun to focus on sustainable growth rather than money-burning subsidies.

UBS said that Shopee's net sales price remains comparable to or lower than that of competitors on most SKUs, which effectively limits the risk of a new round of price wars, and Shopee has avoided significant discount losses with a refined pricing strategy, so it is expected that it will continue to grow at a rate that is in line with or even faster than the average of the Southeast Asian e-commerce market.

Overall, the decline in fanatical subsidies in the Southeast Asian market has clearly weakened TikTok Shop's price advantage over Shopee, and market competition has changed from spending subsidies in the past to healthy competition for product prices and services. UBS said that easing the price war and rationalizing subsidies is most beneficial to the Southeast Asian e-commerce market leader Shopee. It can strengthen its user base and improve GMV and profit curves. For investors, this means Sea is at an inflection point in terms of the balance between growth and profit: while market share and revenue continue to rise, profit margins are expected to increase steadily.

SeaMoney (SeaMoney), a subsidiary of Sea, is another core sector that UBS focuses on. According to UBS's forecast report, the SeaMoney business has grown rapidly in recent years, and the scale of business revenue continues to expand: from US$1,222 billion in 2022 to US$2,368 billion in 2024, it is expected to reach US$3.449 billion in 2025. As the scale effect became apparent, SeaMoney's losses narrowed drastically and gradually moved towards profit.

UBS anticipates that the SeaMoney business is expected to achieve break-even and start contributing positive profits around 2025, becoming a new profit growth point for Sea after e-commerce. Cost control and operating leverage are also important reasons for the improvement in profits in this core business — previously high sales promotions and customer acquisition subsidies were significantly reduced, and the cost per user of the financial business was optimized. Furthermore, the high level of collaboration between SeaMoney and the Shopee e-commerce ecosystem (such as Shopee Pay, installment payments, etc.) promotes user stickiness, which further strengthens the sustainability of Sea's overall revenue and profit growth.

Sea's digital entertainment business (i.e. Garena's gaming business unit) used to be the company's cash cow, but it has faced the challenge of slowing growth in recent years. According to research data provided by UBS Research, Garena's revenue is expected to rise slightly after bottoming out in 2023: digital entertainment business revenue was about US$2,752 billion in 2022, falling to US$1,810 billion in 2023 (mainly due to declining popularity of the flagship game “Free Fire” and restrictions in the Indian market), but unexpectedly rebounded to US$2.49 billion in 2024, and UBS expects further growth to US$2.55 billion in 2025.

The game business forecast above reflects UBS's moderate optimism about Sea Gaming's business prospects: despite the lack of new phenomenal games, the lifecycle management of existing games and strong monetization channels will still bring steady cash flow. Garena maintains a player base through event updates, e-sports events, and social features, and is also exploring new game launches and market expansion (such as entering emerging markets such as Latin America and the Middle East) to maintain the scale of revenue growth. Therefore, UBS determines that the game business will maintain relatively stable revenue and cash flow contributions in the next few years, providing profit support for Sea as a whole.