Maybank's Sea Upgrade: A Tactical Bet on a 36% Pullback

The catalyst is clear. On January 2, Maybank upgraded Sea from Hold to Buy, maintaining a $156 price target. The firm's core argument is that the stock's sharp decline has already priced in most near-term risks, creating an attractive risk-reward setup. That decline is the key: shares have fallen about 36% from their 2025 peak.

This pullback followed a volatile earnings report. In the third quarter, Sea posted a net income surge of 145% to $375 million, with revenue jumping nearly 40%. Yet shares plunged anyway, as the profit figure still missed analyst expectations. The market's reaction highlights the tension between strong underlying growth and near-term execution pressure.

Maybank's thesis hinges on this disconnect. The brokerage acknowledges near-term margin pressure from Shopee's heavy investments, but argues much of that downside has already been reflected in recent earnings estimate cuts. In other words, the steep drop has likely baked in the bear case. The upgrade is a tactical bet that the stock's attractive valuation now offers a better entry point for the company's intact growth drivers.

The Pullback: Is It Overdone?

The 36% decline is a classic case of the market punishing a miss, even against a backdrop of strong growth. The trigger was clear: Sea's third-quarter net income surged 145% to $375 million, and revenue jumped nearly 40%. Yet shares plunged because the profit figure still fell short of analyst expectations. This reaction underscores a key dynamic-investors are often more sensitive to near-term earnings surprises than to underlying business momentum.

Maybank's argument is that this repricing has gone too far. The brokerage contends that much of the near-term risk, particularly the heavy investment cycle for Shopee's VIP programme and logistics, has already been reflected in lowered earnings estimates. In this view, the stock's sharp drop has created a temporary mispricing, where the valuation now better reflects the company's intact growth drivers.

The counterpoint is that the decline may not have fully priced in the cyclical nature of Sea's core game business. Maybank itself notes that Garena's growth is likely to normalise to about 5% in 2026 after a strong 2025, with the risk of a bookings decline due to the cyclical nature of game launches. This introduces a layer of uncertainty that a simple "growth is intact" narrative might overlook. The pullback could be a justified repricing, not just a knee-jerk reaction.

The debate, therefore, is between a tactical opportunity and a fundamental reassessment. The upgrade suggests Maybank sees the former, betting that the market's focus on the Q3 miss has overshadowed the company's five consecutive quarters of Shopee GMV growth and the promising diversification into Monee's financial services. The risk is that the market is instead pricing in a more prolonged period of investment pressure and cyclical gaming headwinds.

The Growth Engine: What's Still Working?

The core business drivers remain robust, even as the stock grinds lower. Shopee's engine is still accelerating, with the e-commerce arm reporting revenue up almost 40% year-on-year last quarter. This growth is not accidental; it's fueled by deliberate, heavy investment. The company is expanding its logistics network, including a push into automated locker stores, and pouring resources into its VIP programme. These moves are designed to strengthen the platform's competitive edge against rivals like Lazada, whose ongoing decline points to a more rational two-player market in Southeast Asia. A more concentrated competitive landscape could support stronger monetization for the winner, with Maybank suggesting that benefit may materialize from 2027.

Yet this growth comes with immediate costs. The heavy spending is reflected in the financials: operating expenses jumped by 28% last quarter. This surge directly pressures Shopee's margins, a risk Maybank acknowledges could see them reduced by about 30 basis points in its bear case. The near-term pressure is real, stemming from both heavier competition and the upfront costs of the VIP programme and fulfillment network build-out.

The story is not just about e-commerce. Sea's other arms are also scaling. The gaming division, Garena, delivered its best quarter since 2021, while the fintech unit, Monee, saw its loan book expand 70% year-on-year. Maybank highlights Monee as an underappreciated growth engine, noting its buy-now-pay-later business offers higher monetization than core e-commerce. This diversification is a key part of the investment thesis, as it provides a path to a more balanced earnings mix.

The bottom line is a tension between powerful growth and painful investment. The engine is still working, driving revenue and market share. But the upgrade is a bet that the market has overreacted to the near-term margin pressure, failing to see the long-term payoff of these strategic bets. The growth is real, but the path to profitability is being paved with cash.

The Risks: What Could Break It?

The tactical setup depends on the market having overreacted. The immediate threats are clear: further margin pressure and a cyclical gaming slowdown. The key watchpoint is Shopee's profitability. Maybank acknowledges the near-term squeeze, with its bear case seeing margins reduced by about 30 basis points due to heavy spending. If the investment cycle extends longer than expected or competition intensifies, the path to profitability could be delayed, invalidating the "already priced in" thesis.

Then there's the gaming arm. While Garena's franchise is a strength, its growth is set to normalise to about 5% in 2026 after a strong 2025. The risk is a bookings decline from the cyclical nature of game launches. This matters because, as Maybank notes, Garena accounts for about 15% of Sea's sum-of-the-parts valuation. A prolonged slowdown in this segment would chip away at the company's perceived value, even if the core e-commerce engine holds.

Finally, the broader sector context adds uncertainty. Consumer internet stocks delivered strong returns in 2025, but as Wedbush points out, performance is expected to diverge in 2026 as investors weigh complex factors like AI monetization and agentic AI adoption. Sea, with its heavy investment cycle, may not be the beneficiary of a sector-wide rally. The stock's recent pullback could be a sign of this shifting sentiment, not just a mispricing of its own fundamentals.

The bottom line is that the upgrade assumes a specific sequence: investment pressure peaks and then recedes, while growth drivers ramp. Any deviation-whether through deeper margin compression, a sharper gaming slowdown, or a sector-wide rotation away from high-investment internet plays-could break the tactical setup. The risks are not existential, but they are immediate and could prolong the stock's grind lower.