On Tuesday, Morgan Stanley (NYSE:MS) reiterated its Overweight rating on Sea Ltd. (NYNYSE:SE:SE) with a price target of $70.00 for the shares, despite recent developments in an antitrust case involving the company's subsidiary in Indonesia.
Sea Ltd. is currently facing allegations from Indonesia's antitrust agency, KPPU, for purportedly engaging in anti-competitive practices by favoring its own delivery service, Shopee Xpress, and excluding other providers.
The hearing for the case began on May 28, 2024, and is expected to influence the stock negatively in the short term. The allegations suggest that Shopee's local unit may have directed customers to use specific delivery services, including its in-house logistics.
Potential penalties, if the company is found guilty, could range from a minimum fine of Rp1 billion (approximately $62,000) to more severe financial repercussions, including up to 50% of net profits or 10% of sales during the period of the alleged violation.
The outcome of the case remains uncertain, with the possibility of Shopee being required to reintroduce a broader selection of delivery service providers to its platform.
Although the company has not disclosed its sales by country, it is estimated that approximately 30% of its e-commerce revenue, which was $9 billion in 2023, originates from Indonesia.
Morgan Stanley's analysis references a precedent from the previous year when KPPU imposed fines on several cooking oil companies for restricting sales during a period of scarcity. The fines for those cases ranged from Rp1 billion to Rp40.9 billion (around $2.6 million).
The firm's assessment suggests that even in a best-case scenario, where Shopee might only need to list more delivery options, the impact could be relatively limited due to Shopee's improved cost structure compared to third-party logistics services.
InvestingPro Insights
As Sea Ltd. (NYSE:SE) navigates the complexities of the antitrust case in Indonesia, investors may consider the company's broader financial health and market performance. According to InvestingPro data, Sea Ltd. holds a market capitalization of $41.34 billion, with a revenue growth of 9.26% over the last twelve months as of Q1 2024. The company's stock has been performing robustly, with a 14.51% price total return over the past month and an impressive 50.74% over the past three months. Moreover, the stock is trading near its 52-week high, at 96.84% of the peak price.
InvestingPro Tips suggest that Sea Ltd. has more cash than debt on its balance sheet and that net income is expected to grow this year. These indicators may reassure investors about the company's ability to manage potential fines and invest in growth despite the legal challenges it faces. Additionally, four analysts have revised their earnings upwards for the upcoming period, signaling a positive outlook on the company's financial performance. For investors seeking further guidance, there are additional tips available on InvestingPro, and using the coupon code PRONEWS24 can provide an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
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