Has ASEAN-6 Internet Sector Reached an Inflection Point?
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Has ASEAN-6 Internet Sector Reached an Inflection Point?

New-economy companies' focus on profitability added to top-line growth pressure in 2022 besides offline economy reopening. We remain positive on the ASEAN-6 e-commerce growth potential, as market penetration remains low at 12% (as of 2022E).

Additionally, our review of product category online penetration versus China shows promise. While a slowdown may persist in 2023, growth may reaccelerate with easing macro headwinds. The on-demand market may see tailwinds, led by mobility recovery and a pick-up in delivery growth.

COVID-19 had differing impacts on on-demand mobility and delivery businesses, with the latter benefitting from the social-distancing measures. And as expected, the opening of the ASEAN-6 economy in 2022 saw a reversal of these effects, with mobility seeing a solid recovery primarily led by mobility recovery. Food delivery growth will likely remain under pressure in 2023 before witnessing pick-up in 2024. Incremental growth in food delivery would mainly come from higher frequency and expansion into Tier-2/3 cities. While online grocery shows promise, we believe the platforms are still figuring out the suitable business model to address the potential.

Digital Financial Services (DFS) are expanding, given the low access to financial services in ASEAN-6; (especially in the developing economies). However, the segment is highly competitive, with many stakeholders competing in the space (telcos, banks, fintechs) besides the internet platforms.

The ASEAN internet sector had a challenging 2022, with growth slowing down and stock valuations declining amid the rising interest rate. We believe 2023 could mark the sector's transition to a more sustainable business model. We believe the emergence of profitability (or signs of the same) will help sector re-rating as the market gets comfortable around the interest rate cycle.

@Varun Ahuja, CFA

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