The largest Singapore company that many Singaporeans never heard of

Sea Limited (SE.NY) is probably Singapore largest company in Singapore that many Singaporeans probably have not heard of yet. Here are some interesting nuggets I discovered about Sea Limited.

  1. Forrest Li arrived in Singapore 16 years ago as a 28 year old renting a room in a HDB in Braddell with a S$100k student loan debt. He left his job and founded Sea in 2009 after rewatching a Steve Job speech to “stay hungry, and to stay foolish” 2, 3 times a day for months. He still owns 25% of Sea, with 39% voting power. The core value of Sea is to “stay humble”. Interestingly, he chosed his first name after watching the movie Forrest Gump. Forrest Li is 43 years old, with a MBA from Stanford and Bachelors from Shanghai Jiaotong. He became a Singapore citizen, and stays in Singapore with his wife, Ma Liqian, who is an investment director with Temasek.
  2. The management of Sea are young and probably very hungry. I have checked that they all came from top universities with first class honours or higher.  Most of them left top jobs to join Sea.
    • Gang Ye, COO –  39
    • Tony Hou, CFO – 41
    • David Chen, CPO – 39
    • Nok Anulomsombut, CEO – 41
    • Terry Zhao, President – 36
  3. The name Sea is an abbreviation for South East Asia. Its core market are : Singapore, Indonesia, Vietnam, Thailand, Malaysia, the Philippines and one extra market, Taiwan.
  4. Sea is the largest company in South East Asia by market capitalization. It is is 2x larger than DBS!
  5. Tencent owns 22.9% of Sea. Yuxin Ren, COO of Tencent, sits is a member of Sea’s board of directors. Just as Tencent has dominated China, Sea may dominate South East Asia.
  6. Sea has 3 main products under its umbrella, and they are at totally different product life cycle stages.
  7. Garena, its digital entertainment business, is the cash cow of Sea.
    • It started off as the exclusive distributor of Tencent games in Southeast Asia.
    • Garena’s monetizes its video games with freemium model, meaning it allows users to download and play fully functional games for free and then sell them features inside the games.
    • Garena’s competitive edge is that it has great insights from their platform where gamers talk about games, what they appreciate, and what they dont like.
    • In 2017, they launched first game, Free Fire, which was a smash hit. It became the most downloaded game in 2019 globally across Google Play and iOS.
    • According to Newzoo Global Mobile Market report 2020, the average time spent playing video games will increase from 1.1  hours per person to 1.5 hours over the next 5 years. The in-games purchase revenue could compound 21% from US$130B in 2020 to US$350B in 2025.
  8. Shopee, the e-commerce arm of sea, has now become the number 1 e-commerce platform in SE Asia.
    • Last quarter, Shopee’s Q3 revenue grew by 173%, year on year.
    • However Shopee rack up losses as it invested heavily to gain market share.
    • Loss per order decreased from US$0.79 a year ago to US$0.41 last quarter.
    • When will Shopee become profitable? Forrest Li said: “It can be profitable anytime. But I think what’s really important to us is we think it’s still very early days for e-commerce development. There’s still a long way to go. What we are trying to do, the most important thing, is that we capture this growth opportunity. We care more about the growth and we care more about the market share. That’s why we are willing to continually invest for the future, rather than just be a bit short-sighted… We really aim big,”.
  9. SeaMoney, the fintech solution of Sea, is only starting out, but could become really important over time.
    • Sea has S$4.75B cash in the bank. They probably have enough money for any acquisition or expansion. In Jan 2021, Sea acquired Indonesian Bank Kesejahteraan Ekonomi. And they may be acquiring a 2nd Indonesian bank.
    • Digital banking are set to penetrate the traditional banking services, including lending. I think Shopee will likely offer credit purchases to allow deferred payments.
    • Digital banking is growing rapidly in US. Will SE Asia follow?
    • Customer acquisition cost are only a fraction of traditional banks.
    • Cost to run a bank branch in US is US$568k.
    • Singapore will have 4 digital banks
      • SEA Limited – full digital bank license
      • Grab-Singtel – full digital bank license
      • Greenland Financial – wholesale bank license
      • Ant Financial – wholesale bank license
    • However, digital banking services will also highly contested. Sea will have to deal with VISA and Mastercard, Paypal, and various platforms by big tech companies. Will they be number 1 in this field when its launched?
  10. Sea has not made a profit at bottom line for the past 6 years. There is no PE ratio to refer to as it is losing money. The PB (Price to Book) is 267. These ratios are meaningless here, except it tells us that there is absolutely no value at current prices for value investors.
    • Will their gaming business face a sharp decline when Covid-19 is over?
    • How long does Garena need to subsidize Shopee losses?
    • Can Shopee stay as number 1 in their markets?
    • Can SeaMoney fight off the fierce competition to be number 1 in every market in SE Asia?
    • Their price chart uptrend seems be one straight line up- when will it correct?
  11. Sea appeals to growth investors.
    • They are using the Amazon strategy of growing market share and market domination, rather than profit. They are delivering on what growth investors want – rising earnings.
    • They have dominated in every product and market they have launched.
    • Sea seem to understand their customers better than their competitors. In a short space of 2 years, they are now number 1 on their chosen markets. There are reviews here and here that describe how in touch Sea is with the market.
    • They probably have good management team, or good business model, or talented employees, or all.
    • Although it is earnings is still negative, its cash flow from operations have finally turned positive in FY2019
    • Comparing Sea operating in South East Asia and Tencent in China, if we divide Tencent’s market cap by 4 (China’s GDP is 4x larger than SE Asia), then Sea could have a market cap of at least US$150B in future. It is now US$96B.
    • According to this report by Google and Temasek, the total sales of everything sold online in South East Asia will grow from $100B in 2020 to $300B in 2025 or about 25% growth per year. This will benefit all 3 of SEA products.

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