Southeast Asian Internet giant Sea (SE.US) sees all three pillars of its business driving force as UBS Group AG holds high the bullish flag.

Swiss multinational bank UBS Group AG (UBS) remains optimistic about the prospects of Sea Ltd (SE.US) ahead of the release of its second-quarter financial report in 2025. UBS maintains a "buy" rating on this Southeast Asian internet giant and reiterates a target price of $200. Compared to the closing price on July 29, the target price implies a potential upside of approximately 24% over the next 12 months. This optimistic stance is due to UBS Group AG's confidence in Sea's core business improvement: rationalization of e-commerce competition, profit margin improvement, and strong growth potential in digital finance and gaming sectors. UBS Group AG emphasizes that the current valuation level of the company will rapidly adjust with profit growth, maintaining a bullish rating and giving a high target price reflects its optimistic expectations for Sea's future performance and valuation expansion. Regarding the core reasons for the bullish view on this Southeast Asian internet giant with a business scope covering gaming, e-commerce, and digital finance, UBS Group AG points out that the improvement in the regional e-commerce competition environment is one of the significant positive factors. Particularly, the slowdown in price wars in the Southeast Asian e-commerce market where Shopee operates implies that Sea is poised to maintain leading growth rates without sacrificing profit margins. At the same time, UBS Group AG highlights the synergistic effect of three major segments under Sea: rapid growth contribution from e-commerce business, digital financial services expected to become a new profit engine, and gaming platform business providing stable cash flow support. This diversified business structure, combined with ongoing cost control by management, leads UBS Group AG to believe that Sea will achieve significant profit growth in the coming years. Therefore, ahead of the financial report release, UBS Group AG maintains an optimistic outlook and reiterates its core investment logic and valuation expansion expectations for Sea. Is Sea Steaming Towards Profit? In its research report, UBS Group AG provides detailed financial fundamentals forecasts and valuation estimates for Sea Ltd. In terms of revenue, UBS Group AG expects Sea's overall revenue to continue to grow rapidly: from $12.701 billion in 2023 to $21.679 billion in 2025, further breaking through to $28.839 billion in 2027. This revenue growth is primarily driven by e-commerce and financial businesses, supplemented by the steady contribution from the gaming business. In terms of profitability, Sea has already turned its losses into profits since 2023. UBS Group AG predicts that the company's EBIT will reach $1.572 billion in 2024, then jump to $3.051 billion in 2025 and further increase to $3.725 billion in 2026. Correspondingly, earnings per share (EPS) are expected to increase significantly from around $1.83 in 2024 to $4.11 in 2025 and $5.63 in 2026, showing a trend of rapid profit release. Key indicators such as net profit margin and ROIC are also expected to improve concurrentlyUBS Group AG estimates that Sea's ROIC (Return on Invested Capital) will increase from approximately 5.8% in 2023 to around 14% in 2025, with a potential to exceed 20% by 2027, demonstrating a significant improvement in the company's investment return efficiency. UBS Group AG compares Sea with global comparable e-commerce and internet leaders in its research report. The report mentions that Sea's current EV/EBITDA of over 20x and forward P/E ratio of around 30x are at a relatively lower valuation level compared to high-growth internet companies in the same category and during the high-growth period of internet giants. With Sea's performance expected to grow by over 30% in the coming years and stronger profit growth expected, UBS Group AG believes that Sea's current valuation is very attractive. UBS Group AG's core bullish logic for Sea's fundamentals and valuation can be summarized as "leader position + rational competition + diversified growth." Firstly, as the leading e-commerce platform in Southeast Asia, Shopee benefits from the increasing e-commerce penetration and rationalization of competition, enabling it to continue growing and outperform the overall market; secondly, the overall market competition environment is becoming more rational, avoiding destructive price wars, allowing Sea to focus on growth while maintaining profitability; thirdly, the synergy between Sea's three main businesses complements each other, creating an ecosystem in the entire Southeast Asian internet industry that is hard to replicate. Based on this logic, UBS Group AG believes that Sea is poised to achieve high revenue and profit growth in the coming years, significantly increasing shareholder returns (the research report predicts an investment return rate of approximately 24% over the next 12 months for Sea's stock price). Driving Sea Towards Stronger Growth Curve Together UBS Group AG's price tracking found that competition among the major e-commerce platforms in Southeast Asia is becoming more rational. UBS Group AG's survey data shows that the price gap between Shopee and TikTok Shop is gradually narrowing, as TikTok Shop has reduced large one-time discounts for new users, moving away from market share seizing through subsidies. This indicates a moderation in the overall market subsidy war, with players now focusing on sustainable growth rather than burning money on subsidies. UBS Group AG states that Shopee's net selling prices remain comparable to or lower than its competitors on most SKUs, effectively limiting the risk of a new round of price wars. Utilizing a refined pricing strategy, Shopee safeguards its growth without significant discount losses, allowing it to continue growing at a pace that matches or exceeds the Southeast Asian e-commerce market's average. Overall, the cooling of the enthusiastic subsidy in the Southeast Asian market benefits Shopee by weakening TikTok Shop's price advantage relative to Shopee. As the market competition shifts from burning money on subsidies to benign competition based on product prices and services, UBS Group AG believes this moderation in price wars and rationalization of subsidies are most favorable for the Southeast Asian e-commerce leader Shopee. It can consolidate its user base and improve its GMV and profit trajectory. For investors, this means that Sea is at a turning point where it continues to gain market share and increase revenue, while also steadily improving profit margins. Sea's digital financial services under SeaMoney are another core segment that UBS Group AG is focusing on. UBS Group AG's forecast report shows that SeaMoney business has been growing rapidly in recent years, with its revenue scale expanding continuously: from $1.222 billion in 2022 to $2.368 billion in 2024, expected to reach $3.449 billion in 2025. As economies of scale become evident, SeaMoney's losses are expected to significantly narrow and steadily move towards profitability. UBS Group AG predicts that SeaMoney will achieve a balance between revenue and expenses around 2025 and begin to contribute positively to profits, becoming a new profit growth point for Sea after e-commerce. Cost control and operational leverage are key reasons for the improvement in profitability in this core business segmentpreviously high sales promotion and customer acquisition subsidies have significantly decreased, optimizing the per user cost of financial services. Additionally, the high degree of synergy between SeaMoney and Shopee's e-commerce ecosystem (such as Shopee Pay, installment payments, etc.) drives user stickiness, further consolidating the sustainability of Sea's overall revenue and profit growth. Sea's digital entertainment business (Garena gaming business division) used to be the company's cash cow, but it has faced challenges of slowing growth in recent years. UBS Group AG's research data suggests that Garena's revenue is expected to slightly rebound after hitting a bottom in 2023: with digital entertainment business revenue at around $2.752 billion in 2022, dropping to $1.810 billion in 2023 (mainly due to the decline in popularity of flagship game "Free Fire" and restrictions in the Indian market), but unexpectedly rising to $2.149 billion in 2024. UBS Group AG forecasts further growth to $2.550 billion in 2025. The above game business forecasts reflect UBS Group AG's moderately optimistic view on the outlook for Sea's gaming business: despite the lack of new phenomenal games, the lifecycle management of existing games and strong monetization avenues are expected to continue to generate stable cash flow. Garena maintains its player base through content updates, esports events, and social features, while also exploring the launch of new games and market expansion (e.g., entering emerging markets in Latin America, the Middle East, etc.) to sustain revenue growth. Therefore, UBS Group AG believes that the gaming business will provide relatively stable revenue and cash flow contributions in the coming years, supporting Sea's overall profitability.