Morgan Stanley analyst Mark Goodridge has reflected on Sea's (NYSE:SE) ESG contribution amid increased investor interest in this topic.
The analyst believes that Sea has a key sustainability role in the new economy of developing markets such as ASEAN and LatAm. This is because the company is looking to improve the quality of life of consumers through technology.
We see two key positive sustainability aspects of SEA Ltd. (1) Shopee, its e-commerce service, helps empower SMEs through digitization and bridge the urban-rural gap in terms of distribution and reach. E-commerce adoption helps traditional SMEs boost their revenue and profit growth. This in turn helps to drive economic growth and reduce inequalities. (2) SEA Money, its digital financial service, provides cashless payment and other digital financial services to the un-banked and under-banked, Goodridge said in a client note released today.
The analyst also acknowledged that the company's gaming business bears a potential negative ESG risk given minor's gaming addiction.
We think that risks in ASEAN markets are low currently as the governments have been showing support for the e-sport industry. However, we are monitoring for potential regulation in Brazil. A positive sustainability aspect of Gaming is that Garena enables social interaction to >600mn Quarterly Active Users, which proved to be valuable given the social restrictions during COVID-19.
Goodridge also reflected on the pullback in Sea stock that is down almost 50% YTD. Still, the analyst sees significant long-term structural opportunities in e-commerce and fintech.
The market is applying an EV/GMV of 0.3x to the e-commerce business, a 50% discount to the average of global peers on 2023 consensus estimates; and we believe the market is not valuing its Digital Financial Services opportunity, the analyst concluded.
Morgan Stanley's price target of $220 implies an upside potential of almost 90%.
By Senad Karaahmetovic