Brokers’ take: UBS issues double upgrade for GoTo from ‘sell’ to ‘buy’

GIVEN the sharp decline in GoTo’s recent share price, analysts from UBS believe there could be an opportunity to buy into the ride-hailing and e-commerce merged entity as it is on track to reach profitability in 2023.

In the past month, GoTo’s shares have fallen by nearly half and more than 70 per cent since it listed at 338 rupiah (S$0.02).

However, UBS is optimistic on the group’s growth, noting that competition in the Indonesian Internet sector has improved, with Sea, Grab and GoTo having lowered incentives and cut general and administrative expenses, the bank said in a report on Monday (Dec 12).

Further, the group’s current gross merchandise value run-rate of between 25 per cent and 30 per cent should help it achieve earnings before interest, taxes, depreciation, and amortization (Ebitda) breakeven by late 2024/early 2025, said analysts.

They were also optimistic that GoTo’s on-demand and e-commerce growth would reach up to 30 per cent of revenue compound annual growth rate between 2022 and 2023.

“While 2022 growth has been adversely impacted by re-openings, and substantial cuts in incentives, underlying penetration for both food delivery and e-commerce remains low in Indonesia versus other markets and ride hailing continues to benefit from post-Covid recovery,” they added.

“Moreover, take-rates, particularly for e-commerce, remain low by global stands and have room for improvement.”

At the time of writing, GoTo has a cash balance of US$2 billion and a quarterly burn rate of about US$250 million. This, UBS believes, reduces the need for fresh capital, though its management will likely remain opportunistic about fundraising.

According to UBS Evidence Lab, a dataset created by UBS’ sell-side team of experts, Tokopedia’s e-commerce monthly active user grew an estimated 20 per cent year on year in indexed monthly active users, outperforming its peers such as Shopee and Lazada in this year’s calendar sale campaigns.

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Sale campaigns which were taken into account include the 9.9 sale, 10.10 sale and 11.11 sale.

UBS noted that GoTo currently trades at about 2.6 times of its 2023 enterprise value or sales, compared with from 2 to 2.5 times for its peers such as Sea and Grab. This suggests that GoTo’s stock premium has narrowed against those of its peers, making GoTo’s valuation attractive, said UBS analysts.

The bank on Monday cut its 2023 to 2024 gross merchandise value estimates by 8 per cent but brought forward its Ebitda breakeven estimates for GoTo. It places GoTo at a price target of 160 rupiah, using the same multiples used in its price targets for Sea and Grab.

UBS analysts believe GoTo has the “most comprehensive fintech presence in Indonesia through its e-wallet app, complemented by offerings in digital lending, insurance and investment sectors”, but cautioned downside risks from the slowdown in e-commerce.