Analysis on GARP with strong economic moats, Moat Investing

Moat Investing

Analysis on GARP with strong economic moats

We are a group of experienced investors that like to dig deeper into stocks to find growth stories at a reasonable price with strong economic moats. We also aim to conduct high-quality analysis by doing deep dive on valuations, key business drivers, risk/reward, and different future scenarios.

GARP with strong economic moats

Equity Bottom-Up

<ul>
<li>Net Revenues reached $1.7 bln (102.6% YoY) on an FX neutral basis; Gross profit was $753 mln (44.3% margin), and the Income from operations was $166.2 mln ($99.4mln in Q1 20).</li>
<li>Net income before taxes was $138.9 mln ($89,3 mln in Q1 20); Net profit was $68.2 mln and Total Payment Volume was $17.5 bln, up 72% YoY on a FX neutral basis.</li>
<li>GMV was $7 billion, up 46% YoY on a FX neutral basis and the Unique active users reached 75.9 mln (+ 47,4% YoY);</li>
<li>Mercado Envios shipped over 230.5 mln items (+46.4% YoY) and Mobile Wallet delivered $2.9 bln in TPV (almost 200% growth YoY on a FX neutral basis.</li>
<li>Mercado Credito portfolio has reached $800 mln.</li>
</ul>


Net Revenues reached $1.7 bln (102.6% YoY) on an FX neutral basis; Gross profit was $753 mln (44.3% margin), and the Income from operations was $166.2 mln ($99.4mln in Q1 20).
Net income before taxes was $138.9 mln ($89,3 mln in Q1 20); Net profit was $68.2 mln and Total Payment Volume was $17.5 bln, up 72% YoY on a FX neutral basis.
GMV was $7 billion, up 46% YoY on a FX neutral basis and the Unique active users reached 75.9 mln (+ 47,4% YoY);
Mercado Envios shipped over 230.5 mln items (+46.4% YoY) and Mobile Wallet delivered $2.9 bln in TPV (almost 200% growth YoY on a FX neutral basis.
Mercado Credito portfolio has reached $800 mln.


MercadoLibre: Positive Q2 Results But Valuation Upside Is Now Limited

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

<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> announced yet another record set of quarterly results last night, with +159% growth in total GAAP revenues to US$2,280.6m. This marks the 12th consecutive quarter of triple-digit growth in revenues, which deserves a standing ovation</p>
<p>The company's digital entertainment business continued to thrive, with quarterly active users (QAU) increasing by +45% YoY and importantly quarterly paying users increasing +85% YoY in 2Q2021, and generating positive EBITDA of US$740.9m.</p>
<p>The quarterly paying users represented a higher portion of users in 2Q2021 and Adjusted EBITDA as a portion of bookings improved to 62.8% for 2Q2021 versus 60.9% in 2Q2020.</p>
<p>Garena's self-developed global hit game <em>Free Fire </em>reached over 1bn downloads on Google Play, with the game ranking number three globally by average monthly users for mobile games in 2Q2021, according to App Annie, with record peak daily users.</p>
<section class="figure"></section>
<p>The company's e-commerce business continued to see rapid growth with gross orders up by +127% YoY to 1.4bn orders and gross merchandise value up by +87.5% YoY to US$15bn whilst the adjusted EBITDA loss per order decreased by -19.6% YoY.</p>
<p>Shopee was the second most downloaded app on Google Play and the second most downloaded app across Google Play and iOS app stores combined forte shopping category globally in 2Q2021, according to App Annie.</p>
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<p>In Brazil, where Shopee was launched in late 2019, it ranked first in the shopping category by downloads, and total time spent in-app, as well as ranking second in terms of monthly active users (MAU) for 2Q2021.</p>
<p> In Brazil, it has already made good progress with more monthly active users than <a href="https://www.smartkarma.com/entities/amazon-com-inc" target="_blank" data-smartkarma-citation="entities:409:1" rel="noopener">Amazon.com Inc (AMZN US)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> and stands in the number two position after <a href="https://www.smartkarma.com/entities/mercadolibre-inc" target="_blank" data-smartkarma-citation="entities:27954:1" rel="noopener">MercadoLibre Inc (MELI US)</a> in terms of active users.</p>
<p><a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> also continued to make significant progress in digital financial services through the adoption of SeaMoney and ShopeePay, with US$4.1bn in total payment volume in its mobile wallet in 2Q2021, up nearly +150% YoY. It also saw an increase of +109% in quarterly paying users in 2Q2021. </p>
<p>The company continues to grow its ShopeeFood business in Indonesia and Vietnam and has seen a very strong performance and positive reception from users as well as driver communities in both markets in 2Q2021, with a strong focus on the quality of services to users.</p>
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<section class="figure">
<p>The company booked an overall gross profit increase of +364% YoY. From a non-GAAP EBITDA perspective, the company booked an EBITDA loss of (US$24.1m) versus an EBITDA profit of US$7.7m.</p>
<p>From a segmental point of view, <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> booked a positive EBITDA of US$740.9m for its digital entertainment segment in 2Q2021 versus US436.2m last year in the same period, an increase of +69.8% YoY. </p>
<p>The e-commerce segment booked an EBITDA loss of (US$579.8m) in 2Q2021 versus a loss of (US$313.7m) last year, an increase in loss of +84.8% YoY.</p>
</section>
<section class="figure">
<section class="figure">These look like yet another blow away set of numbers for <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>, despite the company booking a marginally higher loss. It is all too easy to take a negative view on a high-growth company such as <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> but most negative arguments from analysts tinker with the quarterly minutiae and are somehow blind to the longer-term positive story and the company's growth model.</section>
</section>
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<section class="figure">Management has also raised its full-year guidance, which is now well above analyst expectations. The stock reacted positively to the results breaking out above US$300 to close at a new record close. We remain positive on <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>, which now trades on 10.5x FY22E EV/Sales and 8x FY23E EV/sales, which may look rich but is justified by superior growth to its peers, with e-commerce and digital finance fuelled by the company's gaming business. </section>
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</section>

Sea Ltd (SE US) announced yet another record set of quarterly results last night, with +159% growth in total GAAP revenues to US$2,280.6m. This marks the 12th consecutive quarter of triple-digit growth in revenues, which deserves a standing ovation
The company's digital entertainment business continued to thrive, with quarterly active users (QAU) increasing by +45% YoY and importantly quarterly paying users increasing +85% YoY in 2Q2021, and generating positive EBITDA of US$740.9m.
The quarterly paying users represented a higher portion of users in 2Q2021 and Adjusted EBITDA as a portion of bookings improved to 62.8% for 2Q2021 versus 60.9% in 2Q2020.
Garena's self-developed global hit game Free Fire reached over 1bn downloads on Google Play, with the game ranking number three globally by average monthly users for mobile games in 2Q2021, according to App Annie, with record peak daily users.

The company's e-commerce business continued to see rapid growth with gross orders up by +127% YoY to 1.4bn orders and gross merchandise value up by +87.5% YoY to US$15bn whilst the adjusted EBITDA loss per order decreased by -19.6% YoY.
Shopee was the second most downloaded app on Google Play and the second most downloaded app across Google Play and iOS app stores combined forte shopping category globally in 2Q2021, according to App Annie.

In Brazil, where Shopee was launched in late 2019, it ranked first in the shopping category by downloads, and total time spent in-app, as well as ranking second in terms of monthly active users (MAU) for 2Q2021.
 In Brazil, it has already made good progress with more monthly active users than Amazon.com Inc (AMZN US) and Alibaba Group (BABA US) and stands in the number two position after MercadoLibre Inc (MELI US) in terms of active users.
Sea Ltd (SE US) also continued to make significant progress in digital financial services through the adoption of SeaMoney and ShopeePay, with US$4.1bn in total payment volume in its mobile wallet in 2Q2021, up nearly +150% YoY. It also saw an increase of +109% in quarterly paying users in 2Q2021. 
The company continues to grow its ShopeeFood business in Indonesia and Vietnam and has seen a very strong performance and positive reception from users as well as driver communities in both markets in 2Q2021, with a strong focus on the quality of services to users.


The company booked an overall gross profit increase of +364% YoY. From a non-GAAP EBITDA perspective, the company booked an EBITDA loss of (US$24.1m) versus an EBITDA profit of US$7.7m.
From a segmental point of view, Sea Ltd (SE US) booked a positive EBITDA of US$740.9m for its digital entertainment segment in 2Q2021 versus US436.2m last year in the same period, an increase of +69.8% YoY. 
The e-commerce segment booked an EBITDA loss of (US$579.8m) in 2Q2021 versus a loss of (US$313.7m) last year, an increase in loss of +84.8% YoY.


These look like yet another blow away set of numbers for Sea Ltd (SE US), despite the company booking a marginally higher loss. It is all too easy to take a negative view on a high-growth company such as Sea Ltd (SE US) but most negative arguments from analysts tinker with the quarterly minutiae and are somehow blind to the longer-term positive story and the company's growth model.




Management has also raised its full-year guidance, which is now well above analyst expectations. The stock reacted positively to the results breaking out above US$300 to close at a new record close. We remain positive on Sea Ltd (SE US), which now trades on 10.5x FY22E EV/Sales and 8x FY23E EV/sales, which may look rich but is justified by superior growth to its peers, with e-commerce and digital finance fuelled by the company's gaming business. 














<ul>
<li>We are extremely positive on MercadoLibre and Ozon.</li>
<li>Sea Limited is also one of our top stocks even though we think valuation is stretched.</li>
<li>Growth in 2020 has been fueled by the pandemic, although the process was already in place.</li>
<li>Top online marketplaces globally accounted for $2.67 trillion in 2020, of which Taobao, Tmall, and Amazon represented 2/3.</li>
<li>Emerging marketplaces are disrupting traditional commerce platforms and posing new challenges to the banking sector and the global supply chain.</li>
</ul>


We are extremely positive on MercadoLibre and Ozon.
Sea Limited is also one of our top stocks even though we think valuation is stretched.
Growth in 2020 has been fueled by the pandemic, although the process was already in place.
Top online marketplaces globally accounted for $2.67 trillion in 2020, of which Taobao, Tmall, and Amazon represented 2/3.
Emerging marketplaces are disrupting traditional commerce platforms and posing new challenges to the banking sector and the global supply chain.


Why Emerging Marketplaces MercadoLibre, Ozon, And Sea Limited Will Continue Creating Value Long Term

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Bukalapak.com PT Tbk / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/bukalapak" target="_blank" data-smartkarma-citation="entities:33575:1" rel="noopener">Bukalapak (BUKA IJ)</a>, which means 'opening a kiosk' in Indonesian, is a leading e-commerce player in non-Tier 1 cities in Indonesia, with a market share of 35% in 2020 based on GMV (gross merchandise value), according to Frost &amp; Sullivan. Bukalapak carries out its main business activities through the mobile platform <em>Bukalapak</em> and <em>Bukalapak Partners</em>. Bukalapak has increased its IPO size by about a third to $1.5 billion due to strong demand, according to press reports. Bookbuilding will close on 19 July and the shares are set to list on 6 August. </p><p>The COVID-19 pandemic has accelerated the rate of e-commerce adoption in Indonesia as more consumers are reluctant to travel and started changing their shopping habits to online shopping, due to personal preferences or lockdown restrictions. The share of e-commerce of total retail spending in Indonesia has grown from 5.6% in 2017 to around 22% in 2020 and will reach 35.9% in 2025, according to Frost &amp; Sullivan. </p><div class="content-highlight"><p>Like its peers, Bukalapak is benefiting from this market tailwind. Bukalapak’s strategy of focusing on consumers in the non-Tier 1 area and the mass market in the Tier 1 area results in a relatively small overlap (less than 20%) between its customers and customers of other online marketplaces such as <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a>'s Shopee, <a href="https://www.smartkarma.com/entities/tokopedia-pt" target="_blank" data-smartkarma-citation="entities:24239:1" rel="noopener">Tokopedia PT (1087142D IJ)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>'s Lazada. Competitors generally target the affluent segment of the market. Overall, Bukalapak's fundamentals tick all the right boxes of rising monetisation, lower losses and declining cash burn, in our view. We will discuss valuation in our next note. </p></div>

Bukalapak (BUKA IJ), which means 'opening a kiosk' in Indonesian, is a leading e-commerce player in non-Tier 1 cities in Indonesia, with a market share of 35% in 2020 based on GMV (gross merchandise value), according to Frost &amp; Sullivan. Bukalapak carries out its main business activities through the mobile platform Bukalapak and Bukalapak Partners. Bukalapak has increased its IPO size by about a third to $1.5 billion due to strong demand, according to press reports. Bookbuilding will close on 19 July and the shares are set to list on 6 August. The COVID-19 pandemic has accelerated the rate of e-commerce adoption in Indonesia as more consumers are reluctant to travel and started changing their shopping habits to online shopping, due to personal preferences or lockdown restrictions. The share of e-commerce of total retail spending in Indonesia has grown from 5.6% in 2017 to around 22% in 2020 and will reach 35.9% in 2025, according to Frost &amp; Sullivan. Like its peers, Bukalapak is benefiting from this market tailwind. Bukalapak’s strategy of focusing on consumers in the non-Tier 1 area and the mass market in the Tier 1 area results in a relatively small overlap (less than 20%) between its customers and customers of other online marketplaces such as Sea Ltd (SE US)'s Shopee, Tokopedia PT (1087142D IJ) and Alibaba Group (BABA US)'s Lazada. Competitors generally target the affluent segment of the market. Overall, Bukalapak's fundamentals tick all the right boxes of rising monetisation, lower losses and declining cash burn, in our view. We will discuss valuation in our next note. 

Bukalapak IPO Initiation: Island Shopping

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

<p><a href="https://www.smartkarma.com/entities/mercadolibre-inc" target="_blank" data-smartkarma-citation="entities:27954:1" rel="noopener">MercadoLibre Inc (MELI US)</a> is the most widely held stock in the South American region among active Global managers. </p><p>Though the majority of funds hold less than 1% in <a href="https://www.smartkarma.com/entities/mercadolibre-inc" target="_blank" data-smartkarma-citation="entities:27954:1" rel="noopener">MercadoLibre Inc (MELI US)</a> , there are those who hold significantly more, led by Loomis Sayles Global Growth (5.34%) and MFAM Global Opportunities (5.23%).  </p><p>The trajectory of ownership growth is tracking a similar path to stocks such as <a href="https://www.smartkarma.com/entities/facebook-inc-a" target="_blank" data-smartkarma-citation="entities:665:1" rel="noopener">Facebook Inc A (FB US)</a> , <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US),</a> who were at a similar point to <a href="https://www.smartkarma.com/entities/mercadolibre-inc" target="_blank" data-smartkarma-citation="entities:27954:1" rel="noopener">MercadoLibre Inc (MELI US)</a> some 5-6 years ago.  If the path of returns follows any one of those 3 stocks, then <a href="https://www.smartkarma.com/entities/mercadolibre-inc" target="_blank" data-smartkarma-citation="entities:27954:1" rel="noopener">MercadoLibre Inc (MELI US)</a> is one to hold.</p><p><em>Taken from our Global fund research, covering 378 strategies with AUM of $1.1tr.</em></p>

MercadoLibre Inc (MELI US) is the most widely held stock in the South American region among active Global managers. Though the majority of funds hold less than 1% in MercadoLibre Inc (MELI US) , there are those who hold significantly more, led by Loomis Sayles Global Growth (5.34%) and MFAM Global Opportunities (5.23%).  The trajectory of ownership growth is tracking a similar path to stocks such as Facebook Inc A (FB US) , Tencent (700 HK) and Alibaba Group (BABA US), who were at a similar point to MercadoLibre Inc (MELI US) some 5-6 years ago.  If the path of returns follows any one of those 3 stocks, then MercadoLibre Inc (MELI US) is one to hold.Taken from our Global fund research, covering 378 strategies with AUM of $1.1tr.

MercadoLibre:  The Jewel in the Latam Crown

Brazil

MercadoLibre, Inc. operates an online trading site for the Latin American markets. The Company's website allows businesses and individuals to list items, conduct sales, and purchases online in either a fixed-price and auction format. MercadoLibre offers classified advertisements for motor vehicles, vessels, aircraft, and real estate, as well as online payment services.

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MercadoLibre (MELI US)

MercadoLibre: Positive Q2 Results But Valuation Upside Is Now Limited

Net Revenues reached $1.7 bln (102.6% YoY) on an FX neutral basis; Gross profit was $753 mln (44.3% margin), and the Income from operations was...

Moat Investing

Sea Ltd (SE US) - Standing Ovation

Sea Ltd released another record quarterly result affirming its leading position in gaming and e-commerce in SE Asia, with some positive signals...

Angus Mackintosh

Why Emerging Marketplaces MercadoLibre, Ozon, And Sea Limited Will Continue Creating Value Long Term

We are extremely positive on MercadoLibre and Ozon. Sea Limited is also one of our top stocks even though we think valuation is stretched. Growth...

Moat Investing

Bukalapak IPO Initiation: Island Shopping

Bukalapak has increased its IPO size by about a third to $1.5 billion due to strong demand. Its fundamentals tick all the right boxes of rising...

Arun George

MercadoLibre: The Jewel in the Latam Crown

MercadoLibre is the most widely held stock in the South American region among active Global managers. Ownership growth has been strong, but...

Steven Holden

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