Brokers’ take: UOBKH calls GoTo’s valuation ‘unjustifiable’, initiates with ‘sell’

Vivienne Tay
Published Thu, Sep 8, 2022 · 01:45 PM

UOB Kay Hian has initiated coverage on Indonesian tech giant GoTo with “sell” and a target price of 240 rupiah (S$0.02). It views the company’s valuations as “unjustifiable”, despite its strong growth potential and market leader position.

In terms of price-to-sales, GoTo is trading at a premium of more than 5 times its regional peers, and 3 times its domestic peers, the research team noted in a report on Thursday (Sep 8).

However, the group will not likely generate profits in the next 5 years, given the potential for dilution in earnings per share by 10 per cent each year in the next decade.

UOBKH’s target price of 240 rupiah implies a potential downside of 16.7 per cent from the counter’s last trading price of 288 rupiah as at 11.29 am on Thursday. GoTo was trading 2.1 per cent or 6 rupiah higher at the time.

The target is also based on a more aggressive valuation method than the one used for competitor Bukalapak, in order to account for GoTo’s market leader position, UOBKH said.

It noted that all of the group’s divisions – on-demand services, e-commerce (Tokopedia) and financial technology services (GoTo Financial) – are market leaders. Notably, Tokopedia has been gaining market share from competitors Bukalapak and BliBli.com.

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UOBKH expects the e-commerce platform’s gross transaction value (GTV) to rise at a compound annual growth of 16.2 per cent from 2022-24, with a long-term growth rate of 12.5 per cent from 2025. It anticipates on-demand services, which include GoJek, GoCar and GoSend, to see GTV increase 35 per cent in 2022 and 25 per cent in 2023 and turn profitable by 2027.

That being said, GoTo will likely only turn profitable in 2029, with net income projected at 18.25 trillion by 2032, UOBKH said. Net loss will likely widen until 2026 as GoTo furthers overseas expansion and bolsters its fintech offering. It will then narrow in 2027 when Tokopedia and on-demand services turn around.

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