Since Sea operates three distinct business segments – online games, ecommerce, and payment services – we believe using a sum-of-the-parts (SOTP) approach is an appropriate valuation methodology. Our target price of US$206 is derived from a combination of: 1) US$26.4 per share for the digital entertainment (Garena) business based on a 15x target 2026E PE multiple - our 15x multiple is set at about 30% discount to global comp; 2) US$130.2 per share for the ecommerce Shopee business is based on a 13% normalized take rate and a 4.4x 2026E P/S multiple, set at ~30% premium to global peer average; 3) US$36.2 per share for digital financial services (payments business) based on 5x P/S multiple as we believe a multiple in line with global peers is reasonable given expanding user cases of SeaMoney as well as deepening integration with Shopee platform; and 4) US$12.7 net cash per share as of 2Q25.

Key downside risks that could prevent the shares from reaching our target price include: 1) Shopee continuing to lose market share in ecommerce market and subsidies failing to regain growth; 2) Shopee’s loss is bigger and extends for a longer period than we expected; 3) weaker-than-expected performance of Free Fire; and 4) a changing regulatory environment, the challenges of operating in seven regulatory jurisdictions, and political risks.