Brokers’ take: UBS upgrades GoTo to ‘buy’ on cheap valuation, improving environment  

UBS Securities Asia has upgraded its call on GoTo to “buy” from “neutral” as it said the Indonesian tech giant’s risk-reward is now attractive, given an improving operational environment and the stock’s historical low current levels.

After shedding more than 20 per cent over the past three months, the stock’s current levels put it at an enterprise value-to-sales ratio of 1.9 times, based on UBS’ FY2024 estimates. The research house’s analysts said this is attractive compared to its peers Grab and Sea, which trade at 2.3 times and 1.2 times, respectively.

UBS’ price target on GoTo remains unchanged at 130 rupiah (S$0.011) after trimming near-term gross transaction value (GTV) estimates. This factors in the weak H1 results amid increased competition, particularly for the e-commerce segment. 

Its analysts, however, expect GTV to show stabilisation in Q3 FY2023 before gradually recovering from the following quarter onwards.

They forecast GoTo to become earnings before interest, taxes, depreciation and amortisation positive at a group adjusted level in Q4 FY2023 – in line with GoTo’s guidance – with full-year margins to come in at 0.5 per cent of GTV.

The analysts also project GoTo’s on-demand gross merchandise value (GMV) to grow 2 per cent quarter-on-quarter in Q3 FY2023, considering how Gojek has “marginally increased competitive intensity” in recent months.

Citing channel checks and the recent recovery in food delivery receipts data, UBS noted that Gojek has “started going on the offence” by hiking its discounts in August 2023, resulting in higher order share for the month.

“Overall, we are increasingly more constructive on GoTo as recent and measured fight back in (the) on-demand segment has shown early positive results to its market share,” said its analysts.

Further, UBS views GoTo as the biggest beneficiary of the Indonesian government’s recent decision to ban TikTok Shop, which could in turn result in the separation of TikTok’s e-commerce function from its social media platform.

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“While Shopee and Tokopedia also have their live shopping features, they are unlikely to be impacted given the lack of social media content that allows them to organically attract eyeballs and grow traffic, which appears to be the government’s point of contention with TikTok Shop.”