UBS analysts Navin Killa, Marissa Putri and Joshua Tanja have upgraded GoTo to “buy” from “neutral” previously on the back of improving operational environment.
Noting the slowdown in gross merchandise volume (GMV) growth in the past couple of quarters due to competition, the analysts expect GoTo’s gross transaction volume (GTV) to show stabilisation in 3QFY2023, with gradual recovery from 4QFY2023 onwards. UBS also believes that the concerns over the slowdown in GTV have been priced in.
Moving foward, the analysts expect GoTo to be the biggest beneficiary of Indonesia’s potential restrictions on TikTok Shop. On Sept 25, Indonesia revealed that it is working on addressing concerns about how TikTok Shop had negatively impacted the micro, small and medium sized businesses in the country. The government suggested that TikTok should only be a social media platform instead of a medium for conducting business.
As a result of this ban, UBS believes TikTok Shop Indonesia may be asked to separate its e-commerce unit from its social media platform.
“While Shopee and Tokopedia also have their live shopping features, they are unlikely to be impacted given lack of social media content that allows them to organically attract eyeballs and grow traffic, which appears to be the government's point of contention with TikTok Shop. It remains to be seen how TikTok responds and whether the launch of a separate e-commerce app manages to get traction,” they add.
The potential restrictions on TikTok Shop in Indonesia will help improve competitive dynamics in the e-commerce segment, notes UBS. They further highlight that Gojek’s volume share showed recovery in August after losing market share to Grab for up to seven months in a row. While this comes with slightly higher discounts, delivery fees as a percentage of the average order value increased 40 basis points, narrowing the gap with Grab.
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UBS’s channel checks also suggest Gojek has marginally increased competitive intensity in the past recent months, with some visible improvement in volume share. The analysts expect on-demand GMV to grow 2% q-o-q in 3QFY2023 after declining 4% q-o-q in 2QFY2023 as these initiatives bear fruit.
As the analysts incorporate weak 1HFY2023 results in its model, they have lowered the FY2023 and FY2024 GTV for on-demand and e-commerce by 1%-2% and 9%-13% respectively.
“With the stock down over 20% in the past 3 months, it is trading at FY2024 EV/sales of 1.9x, versus Grab and Sea at 2.3x and 1.2x which we believe is attractive given its presence across multiple segments of Indonesian Internet landscape,” the analysts point out.
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Their target price, which remained unchanged at IDR130 (1.1 cent), implied FY2024 EV/sales of 3.5x.
As at 11.43am SGT, shares in GoTo are trading IDR1 lower or 1.15% down at IDR86.
