Sea's (SE) ecommerce profitability could surprise to the upside as the company leverages structural advantages in logistics, scale, and price competitiveness, Morgan Stanley said Tuesday in a research note.

The brokerage called these competitive "moats" sustainable, citing a 6% reduction in logistics costs per order in Asia, optimized sales and marketing spending, scale efficiencies, and increasing use of artificial intelligence to lower operating costs.

It raised its 2025 ecommerce adjusted earnings before interest, taxes, depreciation, and amortization margin forecast to 1% of gross merchandise value, up from 0.8%, and pulled forward its 2% margin estimate to 2027 from 2029.

Morgan Stanley said Sea's long-term ecommerce margin target of 2% to 3% is achievable and appears conservative compared with peers. The brokerage expects Shopee to maintain strong momentum, projecting 2025 GMV and revenue growth of 20% and 28%, respectively.

The company's digital entertainment arm, Garena, and its digital financial services business, Monee, will also "play a pivotal role in SE's bull case," according to the note. It expects Garena bookings to grow 26% this year, helped by continued traction for Free Fire, the rollout of Free City, and interest in Delta Force Mobile.

Morgan Stanley sees long-term growth as compelling, forecasting 2024-27 revenue and EBITDA compound annual growth rates of 22% and 46%, respectively.

The firm reiterated its overweight rating on Sea and raised its price target to $197 from $167, while noting risks including weaker consumption, asset quality deterioration, intensified ecommerce competition, or setbacks at Garena.