Bukalapak IPO a watershed for Indonesia's booming tech sector

Jakarta

BECOMING the first major tech firm to list on the Indonesian Stock Exchange (IDX) has both advantages and drawbacks for Bukalapak - the country's fourth-largest e-commerce company - as it gears up for an initial public offering (IPO) on Aug 6.

The upcoming listing has created tremendous buzz among investors and market players as it symbolises the potential of South-east Asia's largest economy's fast-growing digital sector.

Bukalapak - the first tech unicorn in Indonesia to launch an IPO - is offering 25 per cent of its total share capital to investors, which would raise 21.9 trillion rupiah (S$2.05 billion).

This would make it the largest public listing on the IDX, outstripping coal mining company Adaro Energy which garnered 12.25 trillion rupiah for its IPO in 2008.

When eventually listed, Bukalapak - which counts Singapore sovereign investor GIC and Microsoft among its backers - will the 15th largest company on the IDX in terms of market capitalisation at 87.6 trillion rupiah. This will put it ahead of Bank Negara Indonesia, Gudang Garam and Barito Pacific.

"It is the first large tech player to be listed on the IDX," said Harry Su, managing director and head of Equity Capital Markets at Samuel International.

"The success of the Bukalapak IPO will be important to gauge the level of investor interest for the upcoming listing of GoTo. A lot of signals are pointing to the fact that it will be a challenging listing."

Market sources told The Business Times that at a listing price of between 750 rupiah and 850 rupiah per share, the IPO is considered to be on the high side, especially given that Bukalapak has been incurring losses in the past and more importantly is forecast to be loss making over the next few years.

"There are two camps within the investor community. The older, value investors are not too keen on the IPO as they deem it hugely expensive at 54 times book value. However, the young tech savvy investors can see the future potential of the company and are excited about the offering," noted one analyst.

A research report by Mandiri Sekuritas, the lead underwriter, noted that it expects Bukalapak to incur losses through 2023 at both the Ebit as well as Ebitda levels.

In response to these concerns, Bukalapak said on its website that it will focus on improving profitability after the IPO is launched.

In its latest financial report, the company's revenue in the first quarter of 2021 was stated at 423.7 billion rupiah or 1.69 trillion rupiah for the full year, compared to 1.07 trillion rupiah in 2019. Its compound annual growth rate over the past three years was a solid 115 per cent.

The IPO also coincides with rising record levels of Covid-19 cases in the country which will have an adverse effect on the economy this year.

In its latest report, S&P Global Ratings said that the ongoing Covid-19 outbreak could have material implications on the operating capacity of the economy due to mitigation measures and voluntary social distancing.

"We lower our economic forecast for 2021 to 3.4 per cent from 4.4 per cent earlier, while 2022 growth will be higher on base effects at 5.6 per cent from 5.2 per cent earlier," said Vishrut Rana, Asia-Pacific economist at S&P Global Ratings.

The pandemic and lower economic forecast have already dampened market sentiment. IDX commissioner Pandu Patria Sjahrir recently told investors that the Bukalapak IPO would be a watershed mark for the country's fast growing tech sector.

Indonesia is home to several unicorns and one decacorn with a number of fast growing tech startups that could become unicorns in the near future. "This will make Bukalapak the largest IPO in the history of the republic," said Mr Pandu. "Bukalapak was only established 10 years ago so it shows the potential of Indonesian tech companies to contribute to the stock market and benefit retail investors."

Edward Chamdani, managing partner of IdeoSource, a venture capital firm that has invested in numerous start-ups, noted that market perception towards tech companies remains positive.

"By listing on the IDX, these companies can focus on their business and strategy before listing abroad," he said. "They need to show performance if they are to attract international investors."

Apart from Bukalapak, the other technology companies in Indonesia seeking a listing include GoTo, Global JET Express (J&T Express) and Tinusa Travelindo (Traveloka).

GoTo's estimated market capitalisation value is estimated at US$18 billion, J&T Express at US$7.8 billion, while Traveloka is at US$2.75 billion.

If all these four companies are listed on the stock exchange, it will potentially increase the weight of the MSCI Index, which is currently controlled by 22 companies with a market cap value of US$95.30 billion, increasing to 26 companies with a market cap value of US$103.32 billion.