DBS cuts Sea target as Shopee spending weighs on profit growth

Investing.com -- DBS Group Research downgraded Southeast Asian e-commerce, gaming and fintech company Sea Ltd to “hold” from “buy” and cut its 12-month price target to $105 from $148, citing risks that Shopee’s investments to strengthen its market position could slow profit-margin growth in 2027.

The broker expects several investments to weigh on Shopee’s profitability next year, including Pinduoduo’s expansion into Southeast Asia, Shopee’s quick-commerce push and its continued VIP programme.

DBS forecasts Sea’s 2027 e-commerce adjusted EBITDA 5% below consensus and group adjusted EBITDA 6% below consensus, partly due to spending on Migoo AI.

Pinduoduo has expanded into four Southeast Asian markets, DBS said, estimating that 10%-13% of Shopee’s gross merchandise value is exposed to the competition, assuming 30%-40% of that volume comes from cross-border sales.

DBS expects Shopee’s adjusted EBITDA margin relative to gross merchandise value to rise to 0.76% in 2027 from 0.65% in 2026, still below the 1.8%-1.9% levels it estimates for Pinduoduo and Alibaba.

Quick-commerce investments are expected to reduce Shopee’s 2026 adjusted EBITDA by 15%-20%, although the impact is already included in Shopee’s guidance for more than $1 billion in adjusted EBITDA. DBS expects the drag to ease to 5%-10% in 2027.

The broker also estimates that Migoo, an AI app launched in June by a Sea subsidiary, could reduce Sea’s 2027 adjusted EBITDA by $73 million-$175 million, depending on user adoption.

Sea shares have fallen about 23% from their August 2026 peak, DBS said, amid concerns that Shopee could be entering another period of heavy investment and subsidies after launching one-hour delivery in Indonesia and Thailand.

Shopee’s cost of revenue rose 51.9% year-on-year in the second quarter, with management citing higher logistics investment.

DBS moved to valuing Sea at 21 times its 2027 non-GAAP earnings, replacing a sum-of-the-parts valuation, citing greater visibility on future earnings.

The multiple implies a price-to-earnings growth ratio of 0.8 and reflects its forecast for a 24% annual growth in non-GAAP earnings per share from 2026 to 2028.

DBS said Shopee retains about 53% of regional market share, while slower TikTok Shop parcel growth in the second quarter suggests competition may be becoming more measured.

Sea’s gaming arm Garena is expected to deliver 7% annual revenue growth from 2026 to 2028, while fintech unit Monee’s loan book grew 61% year-on-year to $11.1 billion in the second quarter, helping support margins of 20%-21%.

In a downside scenario, DBS sees Sea’s shares at $71, based on 16 times 2027 non-GAAP earnings, if TikTok Shop responds to Pinduoduo subsidies with renewed aggressive promotions.

Under that scenario, DBS forecasts earnings-per-share growth of 20%, compared with 24% in its base case.

Original Article

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