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Sea will rise with record US$6.3bn offering

  • Sea is raising US$3.8bn in equity in the largest secondary offering in 2021 and US$2.5bn in equity-linked debt

  • The stock has run up 70% YTD but is now set to rise further

  • The financing will place Sea's net cash at US$14bn, which will give it the firepower to dominate ASEAN e-commerce

Sea will rise with record US$6.3bn offering
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
9 September 2021
Published byTellimer Research

We raise our target price for Sea Ltd to US$434 (from US$360) and reiterate our Buy recommendation due to its announcement of a US$6.3bn financing plan. The proposed transaction increases our DCF valuation for two reasons:

  • The net cash proceeds will be accretive to the valuation; and

  • The proceeds will place Sea in pole position to raise their share of ASEAN e-commerce organically and through acquisition. We raise our FY 22-23 revenue forecast by 15%.

Sea Ltd: FCFF valuation

Sea rises

Sea Ltd announced a US$6.3bn financing plan on 9 September – it plans to issue 11mn shares worth US$3.8bn, as well as US$2.5bn in equity-linked debt. This will be the largest secondary offering in the world since Chinese e-commerce company Pinduoduo raised US$4.1bn in November 2020.

The terms of the US$6.3bn offering are as follows:

  • Sea is offering 11m American Depositary Shares (ADS), each representing one Class A ordinary share, with a par value of US$0.0005 per share. There is optionality to raise a further 1.7mn shares. The proceeds from the issue will be US$3.8bn; and

  • There will be a further issue of US$2.5bn in 5-year convertible notes.

We raise our gross merchandise value (GMV) and revenue forecasts by 23% and 26%, respectively, in FY 22-24. We expect Sea to tighten its grip on ASEAN e-commerce through organic means and acquisitions.

Revision table (US$ mn)

Shifting trends support Sea

Sea’s e-commerce business is on a solid footing. There is a dramatic shift in consumer behavior in ASEAN. Sea's latest results show it is poised to generate strong growth momentum, as it is well placed to benefit from the heightened demand for e-commerce, gaming and digital services in ASEAN. It also has the potential to become a 'super-app', similar to the likes of Alibaba.

Alongside MercadoLibre, Sea is one of our top picks in the EM tech sector. We reiterate our Buy recommendation.

Sea Ltd: Comparative valuation table