In today’s briefing:
- Shopee Enters a New Era of Slower GMV Growth and Higher Fees for Sellers
- Sea Ltd: Free Fire’s Downfall, Shopee’s Struggles, Is Fintech the Next Challenge?
- Tencent (700 HK): 1Q23, Significant Improvements in Growth and Margin
- Notable Recent Insiders Buying in Five Korean Companies
- [Baidu (BIDU US, BUY, TP US$178) Target Price Change]: Maintain BUY for Faster Recovery and AIGC
- Zozo Consolidates Market Share
- Rio Tinto: Final Chapter in the Consolidation of Its Mongolian Crown Jewel Oyu Tolgoi
- [Sea Limited (SE US, SELL, TP US$60) Target Price Change]: Cut Gaming Revenue and Margin Forecast
- Freee: User Acquisition Strategy Paying Off
- China Travel Intl Inv (308 HK): Revisiting This Undervalued Recovery Play
Shopee Enters a New Era of Slower GMV Growth and Higher Fees for Sellers
- Shopee, Southeast Asia’s largest e-commerce player, has been on a strict financial diet to reach profitability in the last year.
- That’s been welcome news for shareholders of its listed parent, Sea Ltd, but more challenging for sellers on the platform who have faced lower sales growth and higher selling costs after years of heavily subsidised operations.
- In this blog post we report on the most important figures from Shopee’s newly published Q1-2023 results (released 16 May) as well as the key implications for e-commerce sellers in Southeast Asia.
Sea Ltd: Free Fire’s Downfall, Shopee’s Struggles, Is Fintech the Next Challenge?
- 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.
Tencent (700 HK): 1Q23, Significant Improvements in Growth and Margin
- In 1Q23, the revenue growth rose significantly to 11% YoY.
- The operating margin also improved significantly to 24% in 1Q23 versus 17% in 1Q22.
- We set an upside of 28% and a price target of HK$440 for yearend 2023.
Notable Recent Insiders Buying in Five Korean Companies
- In this insight, we discuss recent insiders buying in five Korean companies including Dongsuh, Green Cross Holdings, Megastudy, Yuanta Securities, and YG Entertainment.
- With the exception of YG Entertainment, the share prices of the four other companies are trading at nearly 50% since their peak levels in the past several years.
- Of these five companies, three of them (YG Entertainment, Yuanta Securities, and Dongsuh Co) generated positive operating profit on a YoY basis.
[Baidu (BIDU US, BUY, TP US$178) Target Price Change]: Maintain BUY for Faster Recovery and AIGC
- Baidu delivered 1Q23 results with top line beat our estimate by 3.5%, and non-GAAP net income beat our estimate by 14.7%.
- We expect both its ads and AI cloud revenues to recover with accelerated pace, which could offset the increase of R&D spending in AIGC.
- Reiterate BUY rating and slightly raise TP to US$ 178 to reflect the faster recovery. Our TP implies 17.9x PE in 2023.
Zozo Consolidates Market Share
- Zozo managed a 7% gain in GTVs last year which meant it grew its share of the fashion market.
- It now has more than 10 million active users and has laid down plans to reach ¥800 billion in GTVs in the medium term.
- Zozo’s momentum is clear and its targets look realistic. Shame about the performance of Z Holdings.
Rio Tinto: Final Chapter in the Consolidation of Its Mongolian Crown Jewel Oyu Tolgoi
- Rio Tinto Ltd (RIO AU) last year started the long-awaited simplification of its Oyu Tolgoi ownership via the $3.1 billion purchase of Turquoise Hill Resources (TRQ CN).
- With Oyu Tolgoi having an 80-year mine life and ramping up to become the world’s fourth-largest copper mine the ultimate consolidation of its last remaining minority investment is upon us.
- Entree Resources (ETG CN), where Rio already owns 16%, is the final M&A target to consolidate ownership. With arbitration set for April 2024, the clock is ticking.
[Sea Limited (SE US, SELL, TP US$60) Target Price Change]: Cut Gaming Revenue and Margin Forecast
- SE reported C1Q23 revenue/non-GAAP net income in-line/(37%) vs. cons., and (3.2%)/(31%) vs. our est. Profit miss is mainly due to the 53% YoY decline in game revenue
- We suggest that 1) game development and S&M cost cutting, as well as 2) disappointing game content updates during 1Q23, lead to the weak result;
- In the long run, we still expect Shopee growth to be SE’s major issue, as TikTok continues to grow rapidly. We maintain SELL and cut TP to US$ 60.
Freee: User Acquisition Strategy Paying Off
- freee (4478 JP) reported 3QFY06/2023 results. Revenue increased 39.5% YoY to ¥5.1bn (vs consensus ¥4.9bn) while adj. operating losses increased to ¥1.9bn (vs consensus ¥1.9bn) from ¥676m in 3QFY03/2022.
- Widened operating losses is no big surprise as freee had already guided for increased investments related to invoicing system and tax filing season which has helped increase paying user numbers.
- As we continue to emphasise, freee’s business model is superior to that of MF who has resorted to several mediocre businesses (non-BA SAAS) to pursue aggressive top line growth.
China Travel Intl Inv (308 HK): Revisiting This Undervalued Recovery Play
- China Travel International Investment Hong Kong (308 HK) should have more upside from here given the sharp earnings recovery over FY23-25. But the market seems to have overlooked this.
- Its FY18 net profit reached HK$687m; but dipped to HK$356m loss in FY22. With its businesses now behind issues like HK social unrest and border closure, there is immense upside.
- All of CTII’s business segments have experienced recovery in FY23, especially following the resumption of HK-mainland China traffic. Its 0.54x P/B is still 52% down from the peak.
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