Sea Ltd - ADR

Sea Limited was another strong performer for the Fund over the quarter, with the share price appreciating by approximately +16%, driven by a sharp re-rating following its Q1 2026 results in May. The result was headlined by year-on-year revenue growth of +47% to USD 7.1 billion, with all three of the Company's core businesses — Shopee, Monee and Garena — delivering robust growth. Shopee achieved record gross merchandise value (GMV), gross order volume and revenue, with GMV up +30% year-on-year and advertising revenue up +80. The Shopee VIP membership program continued to scale rapidly, surpassing 10 million subscribers across Asia.

We have added to our holdings of Sea Limited. Both are network businesses with powerful, market leading positions in LATAM and Southeast Asia. We think these companies had strong competitive advantages before AI came along. In many cases their investment in AI today looks set to widen their moat tomorrow but share prices/valuations are c.30-50% lower. Great companies, run by great managers offered to us at great prices… This is our sweet spot and in truth, the combined outlook we have for today’s collection of holdings in the Fund excites us.

Sea Limited, a leading consumer internet company operating in e-commerce, digital entertainment, and digital financial services across Southeast Asia and Latin America, was a top detractor from performance during the quarter. In the company’s Q4 results EBITDA came in below already lowered expectations and FY26 guidance implied further near-term pressure on Shopee margins, despite stronger-than-expected GMV and revenue growth. Management guided to 25% FY26 Shopee GMV growth, above prior expectations, but higher investment spending suggests margins are likely to decline year-over-year, which remains a key driver of near-term stock performance. While profitability disappointed, the elevated investments in logistics, fulfillment, and ecosystem expansion are consistent with Sea’s long-term strategy to deepen its localized competitive moat and lower shipping costs versus local peers. With low e-commerce and consumer credit penetration across its core markets and multiple long-duration growth drivers across e-commerce, fintech, and gaming, we believe Sea remains well-positioned to compound value over the long term supporting 20s revenue growth, high teens earnings growth, and continued strong cash flow generation.

Sea is a leading Southeast Asian Internet company operating in digital entertainment, e-commerce, and digital financial services. The company delivered strong top-line growth supported by robust gross merchandise value expansion. However, margin expectations moderated as management increased investment in logistics, its VIP loyalty program, and content. While these investments weighed on near-term profitability, they are intended to capture longer-term growth opportunities. We believe the current level of investment is appropriate given the company’s stage of development and does not signal a structural change in its profitability trajectory. We added to the position during the quarter.

Sea Limited delivered an exceptionally strong Q1 2026, combining its fastest revenue growth in four years with record levels of absolute profitability. Revenue increased 47% YoY to $7.1 billion, while operating income reached $593 million and adjusted EBITDA exceeded $1 billion for the first time. Importantly, these investments appear strategic rather than defensive, with all three core businesses performing well. Shopee continues strengthening its logistics and membership ecosystem while maintaining 30% GMV growth. The underlying unit economics are improving, suggesting that the current margin pressure is temporary and tied to investment timing rather than structural weakness.

Sea Ltd has demonstrated significant growth, generating ~$4.5BN in Free Cash Flow last year, up from $1.7BN in 2023, representing a 10% FCF yield at current prices. Earnings are projected to grow another +150% over the next three years, with GMV growth accelerating from +21% y/y in Q1 2025 to +30% y/y in Q1 2026. Despite these strong fundamentals, shares have dipped -20%, trading at the lowest valuation multiples since late 2023. The company is in a much stronger position today compared to previous periods, and the market's short-term pessimism appears misplaced, suggesting a potential inflection in financials sooner than expected.

Sea Limited is a leading internet platform company in Southeast Asia with dominant positions in e-commerce through Shopee, digital financial services, and gaming. Shopee has emerged as the region’s largest e-commerce platform, with market share approaching half of the Southeast Asian market, while also establishing itself as a credible competitor in Brazil with meaningful room to improve unit economics as the business scales. We believe Sea represents a compelling long-duration growth compounder given its substantial market opportunity and expanding competitive advantages.

Sea Ltd. has faced significant challenges, particularly due to rising competitive intensity in Brazil, which has pressured margins as the company increases spending in its e-commerce business to defend market share. Additionally, there are concerns regarding the digital gaming segment, especially as AI lowers barriers to entry in game development. Given the importance of gaming to Sea Ltd., the strategy has reduced its position in the company to reflect the increased risk associated with these developments.

Southeast Asia’s leading e-commerce platform, Sea Limited, was our largest contributor for the year as the company delivered an impressive combination of accelerating growth and improving profitability. At a group level, revenue rose 30% year-on-year to US$17.9 billion and operating income saw a material turnaround from a US$38.8 million loss to a US$875.2 million profit. Its core e-commerce platform, Shopee, emerged stronger following a period of elevated marketing investment, which drove higher order volumes, improved take rates, and an acceleration in top-line growth. Notably, regulatory pressures in Indonesia have abated, and competition across the region has moderated, paving the way for a more favourable industry structure going forward.

Sea is mentioned as a holding in the portfolio, but there is no explicit directional argument made about its future performance or valuation.