Indonesian tech unicorn Bukalapak jumps 25% on trading debut

SHARES of Indonesian e-commerce platform Bukalapak jumped 24.7 per cent in early trade on Friday, as the tech unicorn made its debut on the Indonesia Stock Exchange.

As at 9.10am Indonesia time, just 10 minutes after the opening bell, the counter was trading at 1,060 Indonesian rupiah, with some 327.6 million shares changing hands. Bukalapak had priced its initial public offering (IPO) at 850 rupiah apiece.

The surge triggered the bourse's automatic rejection of buying orders, after hitting the upper limit of 25 per cent.

The debut of Bukalapak is closely watched, as it is the largest-ever IPO in the world's fourth-most populous country, surpassing Adaro Energy's US$1.3 billion offering in 2008, according to data compiled by Bloomberg.

Investors in the online marketplace include Singapore sovereign wealth fund GIC, China's Alibaba-affiliated Ant Group, US tech giant Microsoft, and Standard Chartered Bank.

Nomura has initiated coverage on Bukalapak with a "buy" rating and a target price of 1,620 rupiah, implying an upside of 90.6 per cent from its IPO price.

The research house's optimism is fuelled by an e-commerce boom in Indonesia.

"E-commerce has gained wide acceptance in Indonesia, while the Covid-19 pandemic has further accelerated this adoption," said analyst Ahmad Maghfur Usman in a report on Friday.

Nomura noted that over the past five years from 2015 to 2020, Indonesian e-commerce sales have registered a compound annual growth rate (CAGR) of 173 per cent - outperforming the US, China and India, which grew at a CAGR of 105 per cent, 118 per cent and 131 per cent, respectively.

"We note the shift away from traditional brick and mortar stores towards e-commerce has been mainly driven by the increasing need for convenience and Indonesia's relatively young, digitally literate population," the analyst added.

While Bukalapak's revenue rose 25.5 per cent to 1.35 trillion rupiah (S$127.2 million) for FY2020, from 1.08 trillion rupiah in FY2019, Mr Ahmad noted that the company has not yet turned a profit.

Losses before interest, taxes, depreciation and amortization (Ebitda) narrowed to 1.60 trillion rupiah in FY2020, from 2.63 trillion rupiah in the prior year, while net loss after tax narrowed to 1.34 trillion rupiah, from 2.80 trillion rupiah in the preceding year.

Mr Ahmad noted that as at end-2020, the largest expense component for Bukalapak was selling and marketing expenses.

"We expect this cost component to increase in the foreseeable future with the company's growth, but decline as a percentage of revenues as its economies of scale likely grow," he said.

"Our earnings projections conservatively factor in net losses until 2024F," the analyst added. "If Bukalapak continues along its current trajectory, it should report its first profit in 2025."

Looking ahead, the analyst opined that one of the key pillars for Bukalapak would be its ability to tap on Indonesia's burgeoning micro, small and medium enterprises (MSMEs).

The company offers e-commerce and other services, such as financial services, to the country's MSMEs through its Mitra Bukalapak platform. Mitra Bukalapak's revenue has registered a 115 per cent CAGR for 2018 to 2020.

Mr Ahmad noted that Indonesia's 63 million MSMEs account for more than half the country's GDP, according to data from the Ministry of Finance.

Growth for MSMEs in Indonesia is expected to remain strong, on the back of improving internet penetration and financial literacy in the country.

"Bukalapak marketplace still makes the bulk of its total revenue. However, based on our analysis, given Bukalapak's strong mitra ecosystem, we believe Mitra Bukalapak will likely become the company's key revenue driver in the future," Mr Ahmad said.

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