China/Asia TMT

Shawn Yang

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

<ul>
<li>SE reported C1Q23 revenue/non-GAAP net income in-line/(37%) vs. cons., and (3.2%)/(31%) vs. our est. Profit miss is mainly due to the 53% YoY decline in game revenue</li>
<li>We suggest that 1) game development and S&amp;M cost cutting, as well as 2) disappointing game content updates during 1Q23, lead to the weak result; </li>
<li>In the long run, we still expect Shopee growth to be SE’s major issue, as TikTok continues to grow rapidly. We maintain SELL and cut TP to US$ 60.</li>
</ul>


SE reported C1Q23 revenue/non-GAAP net income in-line/(37%) vs. cons., and (3.2%)/(31%) vs. our est. Profit miss is mainly due to the 53% YoY decline in game revenue
We suggest that 1) game development and S&amp;M cost cutting, as well as 2) disappointing game content updates during 1Q23, lead to the weak result; 
In the long run, we still expect Shopee growth to be SE’s major issue, as TikTok continues to grow rapidly. We maintain SELL and cut TP to US$ 60.


[Sea Limited (SE US, SELL, TP US$60) Target Price Change]: Cut Gaming Revenue and Margin Forecast

Equity Analyst, LightStream Research

Oshadhi Kumarasiri

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea (SE US)</a>'s shares dropped by 18% as its operating profit fell short of consensus by around 60% at $125m, compared to the expected $311m.</li>
<li>Shopee's revenue shows improvement due to increased monetization, but there are no signs of exponential growth potential in operating profit.</li>
<li>Projected decline in paying users poses further downside for Free Fire, while the previously positive fintech segment underperformed in Q1 with revenue and operating profit below expectations.</li>
</ul>



Sea (SE US)'s shares dropped by 18% as its operating profit fell short of consensus by around 60% at $125m, compared to the expected $311m.
Shopee's revenue shows improvement due to increased monetization, but there are no signs of exponential growth potential in operating profit.
Projected decline in paying users poses further downside for Free Fire, while the previously positive fintech segment underperformed in Q1 with revenue and operating profit below expectations.


Sea Ltd: Free Fire's Downfall, Shopee’s Struggles, Is Fintech the Next Challenge?

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

S&P BSE SENSEX Index / Technical Analysis

<ul>
<li>Our 2023 outlook remains unchanged as we continue to expect broad-based consolidation with $93 capping upside on MSCI ACWI (ACWI-US), while important downside targets are $86, $84, and $75-77.</li>
<li>We still recommend tactical overweight to defensives including gold miners and MSCI ACWI Staples, Health Care, and Utilities, given ACWI-US remains near the top of our expected 2023 trading range.</li>
<li>We are now starting to see broad-based improvement, particularly in Japan and India, but also in Taiwan and South Korea. Most of today's buy recommendations are cyclicals in these countries.</li>
</ul>


Our 2023 outlook remains unchanged as we continue to expect broad-based consolidation with $93 capping upside on MSCI ACWI (ACWI-US), while important downside targets are $86, $84, and $75-77.
We still recommend tactical overweight to defensives including gold miners and MSCI ACWI Staples, Health Care, and Utilities, given ACWI-US remains near the top of our expected 2023 trading range.
We are now starting to see broad-based improvement, particularly in Japan and India, but also in Taiwan and South Korea. Most of today's buy recommendations are cyclicals in these countries.


Broad-Based Improvement in India, Add Exposure/Overweight. Buys: Cyclicals in Japan, India, & Taiwan

<ul>
<li>We expect that Shopee is spending more in recent months to defend from TikTok Ecommerce’s growth; </li>
<li>Further, we see increased marketing to maintain &lt;FreeFire’s&gt; user base, especially in Indonesia; We suggest that SEA’s strong margin performance in 4Q22 was temporary. </li>
<li>We forecast that 1Q23’s net margin is 11.2% vs. 4Q22’s 17.9%. We maintain our SELL rating and US$ 62 TP, implying 27x FY23 P/E.</li>
</ul>


We expect that Shopee is spending more in recent months to defend from TikTok Ecommerce’s growth; 
Further, we see increased marketing to maintain &lt;FreeFire’s&gt; user base, especially in Indonesia; We suggest that SEA’s strong margin performance in 4Q22 was temporary. 
We forecast that 1Q23’s net margin is 11.2% vs. 4Q22’s 17.9%. We maintain our SELL rating and US$ 62 TP, implying 27x FY23 P/E.


[Sea Limited (SE US, SELL, TP US$62) Earnings Preview]: Increase Spending in ECommerce and Gaming

ASEAN Insight Provider, CrossASEAN Research

Angus Mackintosh

ASEAN Insight Provider

CrossASEAN Research

At CrossASEAN Research we strive to produce unbiased and differentiated on the ground insights on companies across South East Asia. Our Research is produced for the most part after face to face meetings and conversations with company management to dig deep into the long term vision and strategy of the companies we cover. We seek to deliver investable and actionable themes on sectors and markets across SE Asia, often in collaboration with other Insight Providers across the region, pooling the vast experience of the analysts within the Smartkarma Ecosystem. We also offer bespoke work and tailor made trips for our clients. 

Insights across South East Asia

<ul>
<li>
<a href="https://www.smartkarma.com/entities/bukalapak" target="_blank" data-smartkarma-citation="entities:33575:1" rel="noopener">Bukalapak (BUKA IJ)</a> announced 1Q2023 results with encouragingly strong headline growth coupled with even stronger revenues as take rates increased, with its marketplace being the standout driven by specialty verticals. </li>
<li>Mitra Bukalapak also registered solid growth, with increasing active Mitra's with greater frequency, higher take rates, and an improvement in contribution margin which should turn positive over the next 2Qs. </li>
<li>Take rates should continue to improve as the specialty businesses pick up momentum, and once the Mitra business turns CM positive, growth in that segment will also accelerate.</li>
</ul>



Bukalapak (BUKA IJ) announced 1Q2023 results with encouragingly strong headline growth coupled with even stronger revenues as take rates increased, with its marketplace being the standout driven by specialty verticals. 
Mitra Bukalapak also registered solid growth, with increasing active Mitra's with greater frequency, higher take rates, and an improvement in contribution margin which should turn positive over the next 2Qs. 
Take rates should continue to improve as the specialty businesses pick up momentum, and once the Mitra business turns CM positive, growth in that segment will also accelerate.


Bukalapak (BUKA IJ) - Specialty Hits Home

Singapore

Sea Limited offers information technology services. The Company provides online personal computer and mobile digital content, e-commerce, and payment platforms. Sea serves customers worldwide.

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Sea (SE US)

[Sea Limited (SE US, SELL, TP US$60) Target Price Change]: Cut Gaming Revenue and Margin Forecast

We suggest that 1) game development and S&M cost cutting, as well as 2) disappointing game content updates during 1Q23, lead to the weak result;

Blue Lotus Research Institute

Sea Ltd: Free Fire's Downfall, Shopee’s Struggles, Is Fintech the Next Challenge?

The fintech segment, which was previously seen as a positive aspect, has exhibited weaknesses in the first quarter, with both revenue and operating...

Oshadhi Kumarasiri

Broad-Based Improvement in India, Add Exposure/Overweight. Buys: Cyclicals in Japan, India, & Taiwan

Seeing broad-based improvement in India #SENSEX -- overweight/add exposure. We still recommend a tactical overweight to ACWI defensives with $ACWI...

Vermilion Research

[Sea Limited (SE US, SELL, TP US$62) Earnings Preview]: Increase Spending in ECommerce and Gaming

We expect that Shopee is spending more in recent months to defend from TikTok Ecommerce’s growth, which may have reached to about 15% of Shopee’s...

Blue Lotus Research Institute

Bukalapak (BUKA IJ) - Specialty Hits Home

Bukalapak 1Q2023 results booked encouragingly strong headline growth coupled with even stronger revenues as take rates increased, with its...

Angus Mackintosh

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