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ASEAN Internet
Firm growth, but not without resistance
Downgrade Grab to HOLD, reinitiate Sea at BUY We downgrade Grab to a non-consensus HOLD and trim our TP by 11% to USD4.0. While the structural growth drivers are in place and Grab has a scale advantage, we believe mild headwinds are likely to cap monetization - Xanh SM’s entry, tight driver supply and consumer spending pressure. We see limited room for long-term improvement in the take-rate.
We raise Sea’s TP to USD90 (from USD62) as we see it reaping the benefits of rationalization in competition and firm growth in the e-commerce space by leveraging its scale advantage and competitive moats while room remains for structural improvement in take-rates. We find management’s Free Fire ever-greening strategy as credible. We maintain our BUY ratings on GoTo and Bukalapak.
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Sea Ltd (SE US)
Firing on multiple cylinders
Re-initiate at BUY, TP of USD90
We re-initiate coverage of Sea with BUY and SOTP-based TP of USD90. We see SE entering the ‘post post-Covid phase’ from a position of strength (multiple competitive moats, scale advantage and financial muscle) to tap the 15% CAGR in the ASEAN e-commerce and fintech space.
Its gaming business has stabilized and we find management efforts to make Free Fire an evergreen franchise as credible. We estimate Sea’s revenues to expand at 16% CAGR over FY23-26E, while a healthy mix of scale benefits and steady monetization improvement drive our 24% EBITDA CAGR expectations. Trading at 0.4x EV/GMV and 3x EV/sales for FY24E, valuations are at 25-30% discount to MELI.
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United Overseas Bank
Stable and sustainable growth model
■ We hosted UOB in KL on 6-7 Jun 2024. Investors were fairly confident in its medium-term outlook. UOB expects positive total income growth in FY24F.
■ Funding cost reduction bearing fruit – management sees NIM upside in 3Q4Q24F. Conversion of wealth AUM into investments is its next growth driver.
■ Reiterate Add with GGM-based TP unchanged at S$33.30. UOB is confident of sustaining a c.14% ROE over the longer term. Its c.6% yield is attractive.
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APPLE Inc. - Throwing its hat into the AI ring
Recommendation: NEUTRAL (Downgraded); TP US$220, Last close: S$214.24
Apple held its annual Worldwide Developers Conference on June 10, where the company introduced Apple Intelligence, its AI framework that supports a range of new features that can be integrated across apps to perform tasks. It also unveiled updates to iOS 18, iPadOS 18, WatchOS 11, and MacOS 15 (Sequoia).
- The new features in Apple Intelligence include major AI-centric upgrades on Siri, AI-powered writing tools, custom AI-generated "Genmoji," and direct access to OpenAI's chatbot.
- The OS updates include user-centric enhancements that focus on personalization, security, writing tools, calculation, and device synchronization.
- We believe the newly announced features will likely trigger a new round of replacement cycle, as Apple Intelligence is only compatible with the iPhone 15 Pro/Pro Max and iPads and MacBooks with M series chips. Additionally, improved device synchronization is expected to further increase product demand, as people are more motivated to get a MacBook to pair with their iPhone (or an iPhone to pair with their MacBook) to enjoy the synchronization benefits.
- We downgrade to a NEUTRAL rating (from ACCUMULATE) after considering recent share price movements. We increase our target price to US$220 (prev. US$194.00), a WACC of 6.5%, and a terminal growth rate of 3%. We raise our iPhone unit estimates by 8%, and increased FY24e revenue/PATMI estimates by 5%/3% to account for higher upgrade demand for products.
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