JP Morgan initiates 'overweight' on GoTo with TP of IDR135

Khairani Afifi Noordin
3-min read

The analyst believes GoTo's new management team will accelerate the path to profitability and drive sustainable growth.

JP Morgan has initiated an “overweight” on GoTo with a target price of IDR135 (1.2 cent), viewing the company as a proxy for Indonesia’s digital economy and growing middle class.

According to analyst Henry Wibowo, JP Morgan’s positive view on the company is premised on its status as the local digital economy champion, in a country with a supportive macro backdrop backed by a 270 million population. The analyst also sees GoTo as the digital economy beneficiary of a potential rate cut in 2024.

For its 3QFY2023 ended September, GoTo is guiding for its gross transaction volume q-o-q growth momentum to return to positive territory, largely driven by a series of product launches. This includes low-cost ride services GoRide Hemat, premium ride services GoCar Luxe, subscription model GoFood Plus, cheaper food delivery service GoFood Hemat and the GoPay standalone app. The successful launch and execution of these new product initiatives can drive the growth trajectory upwards, says Wibowo.

“We expect the consumer purchasing power to notably pick up from 2HFY2023 onwards on the back of elections-related spending. Indonesia is due to hold its next presidential election in February 2024, which would go into a second round by June 2024. Nationwide provincial governor elections will also be held in November 2024.

“We believe that money circulation on the ground owing to multiple election campaign activities will notably increase. This would benefit consumer spending and indirectly benefit the consumption trend for e-commerce, ride hailing, food delivery and financial products,” he adds.

In the near term, other catalysts for GoTo include quarterly earnings that show progress towards its 4QFY2023 breakeven target. This refers to continued narrowing of losses at the 2QFY2023 and 3QFY2023 results, as well as continued expansion of the contribution margin.

The revision and implementation of the Ministry of Trade's “Permendag 50/2020” to regulate social commerce as well as direct cross-border transactions and e-commerce platforms is another catalyst. This would notably benefit local e-commerce platforms with a 100% local merchants focus such as Tokopedia.

Meanwhile, Wibowo also highlights a potential rate cut by Bank Indonesia by 4QFY2023. This could improve sentiment for internet companies, with GoTo as the biggest potential beneficiary especially as 90% of funds of local institutions can only be invested domestically.

For its FY2024, JP Morgan forecast GoTo to achieve positive adjusted ebitda supported by sustainable growth. Wibowo notes that the company is guiding for a 60%-56% y-o-y decline in cash burn in 2023, with the current net cash position of IDR25 trillion which is sufficient for a runway of multiple years — this is especially as GoTo expects ebitda breakeven to be achieved in 4QFY2023.

“On the ground, we have also seen clear evidence of rising monetisation and take rate across multiple divisions, especially food delivery, ride hailing and the e-commerce marketplace,” he adds.

For FY2024 and FY2025, JP Morgan forecasts Grab to post adjusted ebitda of IDR2.4 trillion and IDR8.2 trillion respectively, versus the FY2022 and FY2023 level of -IDR15.6 trillion and -IDR4 trillion. The analyst expects a net revenue CAGR of 32% to IDR26.2 trillion in FY2025, from IDR11.3 trillion in FY2022.

“We think the new management team led by CEO Patrick Walujo and Chairman Agus Martowardojo will accelerate the path to profitability and drive sustainable growth. We believe upside will be driven by GoTo’s ability to achieve adjusted ebitda breakeven in 4QFY2023, which could trigger positive Street earnings revisions and alleviate investor concerns on its cash runway,” says Wibowo.

As at 3.30pm, shares in GoTo are trading IDR1 lower or 1.1% down at IDR90.

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