Analysts at CGS-CIMB Research, Mandiri Sekuritas and UBS Securities are positive on GoTo following the company’s announcement on Feb 16 that it is accelerating its profitability targets.
GoTo aims to achieve positive adjusted ebitda by 4QFY2023, five quarters faster than Mandiri’s analysts Adrian Joezer and Ryan Aristo’s 1QFY2025 forecast. Meanwhile, the positive contribution margin target to be achieved in 1QFY2023 is four quarters faster than the analysts’ 4QFY2023 forecast. Mandiri has kept their “buy” call with a target price of 230 rupiah.
The analysts highlight that GoTo’s adjusted ebitda target is in-line with Shopee and ahead of Grab — both of which have strong presence in more profitable markets outside of Indonesia.
As per its 3QFY2022 earnings call, Sea targets to deliver positive adjusted ebitda for Shopee by end-2023, while claiming that Shopee Indonesia has already achieved positive contribution margin in 3QFY2022. Grab, on the other hand, targets to reach group adjusted ebitda breakeven in 2HFY2024 as per its 3QFY2022 earnings call, Mandiri analysts point out.
CGS-CIMB analysts Ryan Winipta and Baruna Arkasatyo believe that the improvement in GoTo’s profitability will be driven by revenue optimisation, cost control and introduction of new features within the ecosystem.
“We believe the recent changes in the board of directors and board of commissioners could indicate that GoTo will start picking low-hanging fruit by implementing a more aggressive cost optimisation strategy. Nonetheless, we remain conservative in our estimates and expect GoTo to turn adjusted ebitda positive by 1QFY2024 versus GoTo’s guidance of 4QFY2023, pending further details and evidence of cost optimisation,” they add.
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Aside from fundamentals, Winipta and Arkasatyo believe GoTo should also benefit from its potential inclusion in the MSCI and FTSE indices, along with incremental buying from local institutional funds. Citing Indonesia Central Securities Depository data, the analysts note that local institutional funds seem to have an underweight position on GoTo against Jakarta Composite Index’s actual weight.
“Hence, with the US Federal Reserve potentially pivoting from its hawkish stance, these technical factors lead us to believe that any weakness in GoTo’s share price would provide an attractive entry point for the stock.”
The CGS-CIMB analysts have upgraded their rating from “hold” to “add”, with a higher target price of 150 rupiah. They also raise their FY2023-FY2024 earnings per share estimates on the back of better monetisation outlook and cost-cutting initiatives.
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UBS analysts Navin Killa, Marissa Putri and Joshua Tanja view the accelerated breakeven timeline announcement as a positive catalyst for the stock, expecting more management commentary during GoTo’s 4QFY2022 results in March.
They note that GoTo expects the new targets to bring operating cash flow to be close to positive, which could significantly reduce future funding risks. Aside from changing its leadership structure and operational improvements, the analysts also highlight that GoTo had disposed of its stake in Alfamart for 1.5 trillion rupiah in Dec 2022.
“The company remains focused on synergies around hyperlocal logistics, and building flywheel effect across its ecosystem,” they add.
UBS has a “buy” rating and a target price of 160 rupiah.
As at 10.55am Singapore time, shares in GoTo are trading 3 rupiah lower or 2.4% down at 122 rupiah.
