Brokers’ Take: Deutsche Bank dismisses GoTo financing worries, initiates coverage with ‘buy’

DEUTSCHE Bank Research has initiated coverage on Indonesian digital-services company GoTo Gojek Tokopedia (GoTo) with a “buy” rating, as it believes market worries about GoTo’s financing requirements amid rising interest rates are overdone.

In a report on Wednesday (Oct 19), analyst ReenaVerma Bhasin set a target price of 250 rupiah (S$0.023) on the stock, based on her valuation of GoTo’s equity at US$20 billion. This implies a potential upside of 20 to 21 per cent from the counter’s Oct 14 share price of 202 rupiah.

Rising interest rates have led to market fears regarding GoTo’s external financing requirements, which resulted in the company’s share price falling 40 per cent since its listing and 25 per cent over the last month alone. 

GoTo will likely require external financing from 2024 to 2025, Bhasin said. But she noted that the peak financing requirement is expected to be less than US$500 million, a figure “well within existing unutilised credit lines” for GoTo.

She liked the stock for its strong growth prospects, backed by its unique business portfolio, which integrates e-commerce, on-demand and financial services into a single ecosystem.

Gojek is trading at an enterprise value over gross transaction value (EV/GTV) of 0.3 times, indicating higher GTV growth than its competitors Grab and Sea, which are trading at an EV/GTV of 0.2 times each.

Bhasin expects GoTo’s e-commerce take-rates to improve further in the coming quarters, due to the firm’s various optimisation initiatives. Its Tokopedia e-commerce platform commands a 34 per cent share of Indonesia’s e-commerce market, according to Euromonitor data for 2021. 

She also noted that GoTo has widened its lending activities in its financial services, providing a potential catalyst for revenue acceleration.

“We expect these initiatives to grow gross revenues at a compound annual growth rate (CAGR) of around 38 per cent and net revenues at a CAGR of 64 per cent from 2022 to 2025,” she said.

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She also expects GoTo’s on-demand segment to grow amid the ongoing post-pandemic demand recovery and rising economic prosperity. A recent government fare hike for app-based motorbike transport services will likely have “only a small impact” on the overall on-demand take-rate, she added.

Nevertheless, she noted that the company’s Ebitda (earnings before interest, taxes, depreciation and amortisation) would need time to break even, and that turnaround could be “further away by two years”.