In South East Asia, many of us are aware of "Sea" as it once held the title of the most valuable company in Singapore as well as its "Shopee" brand and jingles.
Competition from Alibab and Tencent
Sea is large in 2 aspects- it has a sprawling gaming, esports in Garena and e commerce brand in Shopee. Garena's games are one of the most downloaded in the world.
However in each segment it has a competitor in the form of Tencent (Gaming/Esports) and Alibaba (Lazada)
China Government's Blunder in Regulating Tech Companies will result in China Losing Out
While the giant 2 has deep financial pockets, the major obstacle is their own government that has been reducing their their profitability and cashflow generation ability. As a result, while Tencent and Alibaba has been fiercely competing with Sea in the respective segments in South East Asia, Sea has been standing its ground and retaining the market leader in both.
Truthfully, without the blundering China Government, Sea would have likely been taken out and tethering to bankruptcy due to its loss making ways. However, thanks to China, Sea's strong execution has enabled it to fight 2 giants who each have one hand tied behind their back in South East Asia market. That is quite commendable.
To Bet on South East Asia's Growth - Sea is the choice, not Alibaba or Tencent
Today, I came across a SeekingAlpha Article titled "Alibaba Is Making The Right Moves"
In it, it wrote Alibaba's international e commerce revenue is growing due to its presence in South East Asia, however, I disagree as Sea's growth in e commerce for this region is faster than Lazada's still. In short, the e commerce pie is growing but Alibaba is not capturing it as fast as Sea Group because it is distracted by its own government hindering it in Mainland China.
It is the same for Tencent as well where Huya, its e-sports subsidiary, is being obliterated by the communist government to the extent it is bleeding losses. This is why Sea Group is definitely the bet if an investor wishes to ride on the growth and not Tencent/Alibaba that I feel will flounder in their South East Asia expansion (similar to how they had failed in Europe)
Valuation of Sea Group is Rich
No doubt i have discounted Alibaba and Tencent's presence in South East Asia, however in some segments, Sea has local competitors such as Go-to and Grab. Given how Alibaba is being distracted by China, Go-To is likely going be a distant third. Grab is going to be Sea's main rival.
Sea's valuation is now close to fair value and as written in my previous article, i would prefer a higher margin of safety before investing. Long term wise, I feel Sea Group will survive because the giants in China are hindered by their blundering government. As long as China is not able to keep its house in order, Sea Group has a high probability of survival and being the market leader.
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