Sea stock sizzles to all-time high on Singapore digital bank win

News that Sea Limited was selected to set up a digital bank in Singapore drove its stock price to fresh records.

  • Sea, Shopee and Garena’s owner, will soon run one of Singapore’s new digital banks
  • Its New York-listed shares surged to a new high on Friday (04 December)
  • Analysts have long been bullish on the counter, thanks to its strength in other segments

Investors cheer digital banking licence award

Tencent-backed e-commerce, gaming and fintech player Sea Limited has clinched one of the two coveted digital full-bank licences in Singapore, a move set to bolster its presence in the financial arena.

Like traditional banks, digital banks will take deposits and offer services to both retail and corporate customers, but without a physical presence.

Following the digital-bank announcement on Friday (4 December), Sea’s shares on the New York Stock Exchange jumped 8.3% to finish at US$198.78 - its highest close since going public in 2017.

On Friday, the counter rose as much as 10.5% to reach an intraday high of US$202.89.

The Singapore-based consumer Internet firm - now the city-state’s most valuable homegrown listed company - has seen its share price soar this year. The boom came as investors piled into technology names while the Covid-19 pandemic boosted stay-at-home activities.

Year to date, the investor darling’s stock price has nearly quadrupled from US$40.22 at the end of December 2019.

What can we expect from Sea’s new venture?

With its new digital bank, the Southeast Asian tech titan will aim to address unmet financial needs of millennials as well as small and medium enterprises (SMEs) in Singapore.

Young consumers and SMEs form the user profile of Sea’s three main platforms - online shopping marketplace Shopee, gaming arm Garena and digital financial services network SeaMoney.

The group’s chairman and chief executive Forrest Li said on Friday that Sea will aim to further contribute to the long-term development of Singapore’s digital economy and create more employment opportunities.

The other successful applicant that will be competing with Sea in the digital full-bank space is an alliance between fintech and ride-hailing giant Grab and Singapore’s biggest telco Singtel.

What are analysts saying about Sea?

CIMB said the digital bank news is a ‘slight positive’ for Sea, as banking complements its e-commerce business.

‘SeaMoney is already an emerging e-wallet player, with 17.8 million quarterly paying users transacting more than US$2.1 billion using the wallet services in Q3 2020,’ said the brokerage, which has an ‘add’ call and US$210 target on Sea.

It also noted that Sea has a niche understanding of millennials and SMEs in the region, thanks to its gaming and e-commerce ecosystem. Sea’s digital bank can thus offer differentiated products targeting these users’ needs, allowing the group to further build up more revenue streams in its financial services segment, CIMB said.

‘However, aggressive expansion into this segment may put pressure on margins for its digital financial services in the medium term,’ the analysts added.

Overall, the stock has been rated ‘buy’ by 16 out of 20 analysts, with an average 12-month target price of US$202.42. In December thus far, TFI Securities and HSBC have each called Sea a ‘buy’, although Stifel recommended ‘hold’ and Tellimer reiterated ‘sell’.

That being said, sceptics have noted that Sea’s main businesses are facing deep-pocketed competitors, including Grab, Lazada and newcomers in digital finance.

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