CGS-CIMB Research analysts Ryan Winipta and Baruna Arkasatyo have kept their “hold” call on GoTo Gojek Tokopedia despite seeing prospects improving for the group.
“We think the fundamentals are supportive of GoTo Gojek Tokopedia’s topline in the next 12 months, as both Grab and Shopee — GoTo’s main competition for on-demand services and e-commerce — are also aiming to accelerate their path to profitability,” the analysts write.
According to them, the acceleration to profitability for Grab and Shopee will lead to a “healthier competition landscape”, reflected in lower promotional spending and improved monetisation, unlike what was seen in 2017-2021.
“GoTo was able to increase its merchant commission rate a few times in the past six months while lowering promotional spending. Non-core asset divestments in AMRT IJ and a 12% headcount layoff in November 2022 as part of its cost optimisation initiative should also be able to support its bottomline (adjusted ebitda) improvement,” the analysts add.
However, the analysts have kept their current rating due to GoTo’s “lofty valuation” at 5.3x its FY2024 EV/sales compared to Grab’s 3.4x and Shopee’s 2.0x. This is despite GoTo’s longer path to profitability, which was partly caused by its less aggressive cost-cutting policies compared to its peers. The potential selling pressure from its pre-initial public offering (IPO) shareholders, which make up 70% of GoTo’s total shareholders, are also contributing to the analysts’ “hold” call.
After the expiry of the lock-up period on Nov 30, 2022, shares in GoTo fell by 46% to 82 rupiah (0.714 cents) before recovering by some 40% to 115 rupiah per share.
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To this end, the analysts have lowered their target price to 115 rupiah from 204 rupiah previously.
The new sum-of-the-parts (SOTP)-based target price values GoTo’s on-demand services at 2.3x its FY2024 EV/sales, its e-commerce business at 3.0x FY2024 EV/sales and 0.05x FY2024 EV/GTV or gross transaction value.
Despite the lowered target price, the analysts see two main upsides for GoTo, the first being its inclusion in the MSCI Standard Cap Index in May or November.
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“While quarterly inclusion (in February or August) is a possibility, inclusion is rare as MSCI set a higher cut-off to limit index turnover. Nonetheless, our calculations indicate that GoTo could be included in either February or May, which would allow selling pressure to ease off as the potential inflows could be as big as 8% of GoTo’s market cap, based on our estimates,” the analysts write.
“Second is the risk-off narrative following a potential pivot from the Fed’s hawkish stance, which has positively affected Nasdaq (ytd +7%) and Internet stocks in general,” they add.
The Fed’s pivot from its hawkish stance and better-than-expected financial results are other upside risks, in the analysts’ view.
Shares in GoTo closed flat at 114 rupiah on Jan 18.