Daily BriefsSingapore

Singapore: AEM, Mapletree Industrial Trust, Sea Ltd, Grab and more

In today’s briefing:

  • AEM Holding: Aggressively Buying Their Own Stock; Historically Pre-Cursor to Strong Performance
  • Mapletree Industrial (MINT SP) Placement – Large but Accretive Deal, Becoming More like Keppel DC
  • Sea Ltd – Supercharged
  • Grab – Too Much Euphoria?

AEM Holding: Aggressively Buying Their Own Stock; Historically Pre-Cursor to Strong Performance

By Nicolas Van Broekhoven

AEM (AEM SP) reported results which disappointed the market. See my latest insight for more details AEM: Temporary Weakness Creates Buying Opportunity Going into New Product Cycle as of 3Q21. As a result the stock is now lower by 1% YTD.

Over the past week the company has been buying back shares almost every day. Does this signal a bottom?  We looked at similar episodes in 2019 and 2020 and conclude that when the company is aggressively buying it is a pre-cursor of strong share price performance going forward. Unlike some US companies which are perennially buying back their own stock AEM (AEM SP) is very specific in their timing and it usually reflects management sentiment that AEM is undervalued.

Bottom line: while 2Q21 results might not be glorious we expect strong performance in 2H21 and into 2022. Management was very clear on the call “big” new customer wins by 2022 are very likely. If AEM can prove other big customer wins outside Intel Corp (INTC US) this would be a game-changer and increase its M&A appeal going forward. Fair Value remains unchanged at 5 SGD (43% upside from 3.5 SGD).

Sea Ltd – Supercharged

By Angus Mackintosh

Sea Ltd (SE US) announced its 1Q2021 results which look like a blowout set of numbers with +147% growth in total GAAP revenues with +117% growth in digital bookings for digital entertainment and +250% YoY growth in e-commerce GAAP revenues.

Gross Profit increased a staggering +212% YoY to US$645.4m in 1Q2021 and the company booked a positive EBITDA of US$88.1m versus a (US$69.9m) loss in 1Q2020.

The gross profit margin increased from 28% in 1Q2020 to 36% in 1Q2021, which is a testament to the fact that the company is moving along the path to profitability. Digital entertainment saw higher margins, while-commerce saw falling EBITDA loss per order.

In Digital Entertainment (DE) division continues to see strong growth in its user base with +61% YoY growth in quarterly active users (QAU) to 648.6m but more importantly quarterly paying users saw growth of +12.3% YoY to 79.8m signifying a higher level of monetization on its self-developed game Free Fire.

The company continues to successfully expand its gaming business to new geographies, with India being the latest growth engine and players are spending more time on Free Fire and spending more. It continues to add new content and characters to increase the appeal and stickiness of Free Fire. It is also seeing huge response in the eSports arena for Free Fire.

Shopee ranked number one in the shopping category by monthly active users and time spent in app in 1Q2021 for both South East Asia and Taiwan, according to App Annie. E-commerce continues to show supercharged growth and especially in the core market of Indonesia.

Sea Ltd (SE US)‘s move into digital payments in South -East Asia under SeaMoney and ShopeePay in Indonesia continues to see strong momentum.  The mobile wallet total payment volume saw total payment volume triple in 1Q2021 to US$3.4bn. 

The company is also expanding the offline use-cases for ShopeePay most recently extending use to Indomaret in Indonesia, the largest mini-market operator in the country.

Sea Ltd (SE US)‘s move into food delivery through ShopeeFood and evidence suggests that it has already had a strong reception to its launch in Jakarta, with growth similar to that in other categories.

This latest set of results provides further proof of the success of the Sea Ltd (SE US) growth model which generates huge EBITDA from gaming and reinvests that money into growing the company’s e-commerce and digital finance businesses, whilst maintaining the investment momentum into the gaming cash cow, buy pushing out into new geographies such as India.

Sea Ltd (SE US) continues to standout as the best way to play the explosive growth in e-commerce in South East Asia, funded by the popularity of its self developed game Free Fire and its gaming business, together with its move into digital payments a third leg to future growth.

Sea Ltd (SE US) valuations are higher than its listed peers on 13x and 9x EV/Sales for FY21E and FY22E respectively but it is growing at more than twice the pace in terms of sales to justify this. The market is also paying a premium for its unique financing plus its market leadership and strong track record on execution, with 11 consecutive quarters of triple-digit growth.

Grab – Too Much Euphoria?

By Angus Mackintosh

Looking at the reports in the press on the news that Grab will seek a listing through an Altimeter Capital SPAC, there seems to be nothing but euphoria, without very much commentary on the potential risks ahead to the company’s bullish forecasts and relatively high valuations. 

In terms of profitability, Grab maintains that ride-hailing was EBITDA positive in 4Q2019 but the company still lost US$800m in 2020.

Grab‘s projections are quite long-dated in the face of increasing and very unpredictable competitive pressures from the other major digital players, more especially the newly merged Gojek and Tokopedia under “GoTo Group” and from Shopee (Sea Ltd (SE US)). 

The delivery and mobility take-rate assumptions also look quite high given the potential for heavy promotional activity from major competitors.

In the company’s presentation, there are three pages of detailed “Risk Factors Relating to Grab” in a small font covering a lot of bases, and leaving plenty of room for disappointment.

Our main concern would be the strong competition from Shopee on digital payments plus its move into food delivery in Indonesia under ShopeeFood.  It is also possible OVO stands to lose a good deal of business to GoPay with the merger moving ahead. 

We also see the combined force of Gojek and Tokopedia under GoTo Group will also be a formidable competitor, given it will also have an e-commerce arm. Please see GoTo – Enter the Green Dragon for more background

The valuations look quite aggressive given that on the stated EV of US$30.36bn, it will be valued at 13.2x FY21E EV/Sales and 9.2x FY22E EV/Sales, which is pretty much in line with Sea Ltd (SE US), which currently trades on .

We await more details on the planned floatation of GoTo Group, which is expected to be valued at more than US$40bn but probably deserves a higher multiple, given it has an e-commerce arm and a more established digital finance business, even though still at an early stage.

It is interesting to note that the share price of the Altimeter SPAC is approaching US$11, which suggests there is not much of a premium being built into the float, given that PIPE investors get shares at US$10.

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