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GoTo's valuation more reasonable, UOBKH upgrades to 'hold' with lower TP

Khairani Afifi Noordin
Khairani Afifi Noordin11/25/2022 10:31 AM GMT+08  • 2 min read
GoTo's valuation more reasonable, UOBKH upgrades to 'hold' with lower TP
GoTo's reduction in promotion to customers is the first step in the right direction, the analyst says. Photo: Bloomberg
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UOB Kay Hian analyst Stevanus Juanda has upgraded GoTo to “hold” with a lower target price of IDR190 (1.7 cent) from IDR240 previously following the company’s 3QFY2022 ended September results announcement.

In his Nov 23 report, the analyst notes that GoTo’s 3QFY2022 revenue rose by 216.6% y-o-y while net loss only widened by 26% y-o-y, which is a good sign that the company is headed towards profitability.

The rise in revenue is attributable to reduced promotion to customers, which were cut by 57% y-o-y and 63.3% q-o-q respectively. Juanda believes this is the first step in the right direction, as GoTo’s competitors such as Bukalapak have also been reducing promotion and discounts to customers.

Due to lower discount and operating expenses growth trailing revenue growth, GoTo’s contribution margin has improved across the board. Its on-demand services recorded positive contribution margin in September 2022, while its e-commerce contribution margin continued to improve to -1.1% in 3QFY2022 from -1.4% in 2QFY2022.

In its earnings call, GoTo indicated that it is targeting to achieve positive contribution margin in 4QFY2023 onwards, as well as to become ebitda positive in 12-18 months after. Juanda highlights that the drivers will come from revenue growth, an increase in take rate, as well as operating expenses management.

“GoTo is now embarking on cost-saving initiatives so that it can start delivering better results at the bottom line, and not just at the top-line,” he adds.

See also: Analysts maintain 'hold' on Parkway Life REIT following resilient 2HFY2022 results

After incorporating the 9MFY2022 NPAT, UOBKH lowers its 2022 core net loss estimates by 5.1% and raises its 2023 core net loss estimates by 8.6%.

GoTo’s share price has fallen from IDR282 at the time of UOBKH’s initiation to IDR196 on Nov 23. Juanda believes its current valuation is more reasonable, having applied a 25% premium to Bukalapak’s valuation for GoTo’s market leadership. Hence, the analyst derives a fair value of IDR190 for the stock.

As at 10.29am, shares in GoTo are trading at IDR2 higher or 1.06% up at IDR190.

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