MAYBANK Securities has initiated coverage on GoTo Group, the parent company of Gojek and Tokopedia, with a “buy” call and a target price of 153 rupiah.

In a report on Friday (Jun 16), the research house said that it is optimistic regarding the Indonesian tech giant’s growth outlook and “strong” Indonesia market leadership as the group shifts its focus to profitability.

Maybank expects the group’s adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) to turn positive by FY2024. This is provided the group achieves a higher net take rate, lower marketing expenses and operational efficiencies.

“We believe GoTo is on the right trajectory, as it achieved a positive contribution margin in Q1 2023,” said Maybank analyst Etta Rusdiana Putra.

Any sales and marketing rationalisation will also be “vital to profitability”, Putra added, estimating a drop in gross transaction value to 1.2 per cent in FY2024 from 2.3 per cent in FY2022.

The research house’s target price of 153 rupiah implies a potential upside of 30.8 per cent from GoTo’s trading price of 117 rupiah as at 11.59 am on Monday.

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The target price translates to an enterprise value-to-sales (EV/S) ratio of 5.6 times for FY2024 – a 39 per cent discount to peers’ average of 9.2 times between FY2018 and FY2022.

Putra believes GoTo is well-positioned to tap into Indonesia’s rising middle class – estimated at around 55 to 60 million people – as a market, due to the group’s time-saving and convenience value proposition.

Putra added that GoTo will also benefit from growth in Indonesia’s digital economy, which is “still in its infancy”. The sector’s growth will be driven by the country’s growing population and its rising middle class, which will in turn lead to higher demand and purchasing power

The research house also cited improving infrastructure in Java and Sumatra and urbanisation as other growth factors. Furthermore, post-Covid-19, digitalisation has become more entrenched in Indonesian culture.

GoTo, which provides online ride-hailing and food delivery services, digital financial services as well as an e-commerce platform, is one of two market leaders in the Indonesian market alongside Grab.

Maybank’s EV/S target on GoTo is at a 19 per cent premium to Grab – which has an estimated EV/S ratio of 4.7 times. Historically, GoTo has also traded at a premium to Grab.

“We think GoTo’s application is intuitive and easy to use, and it has competitive pricing. We believe that price normalisation is an industry trend, hence we think GoTo can retain its market share,” said Putra.

In future, Maybank expects competition to soften as the increasing cost of capital will cut incentives for new entrants, creating an oligopolistic market with just two to three dominant companies and limited alternatives for consumers.