Tech Sector
FY24 outlook: Robust GMV growth outlook with incumbents to be key beneficiaries
- Robust online sector growth to resume (15% cagr FY23-25F as per GTBc’s forecast) accompanied by new investment commitments.
- Online economy to undergo major consolidation after the TTS-Tokped deal, with GOTO expected to take a 180° shift to fintech verticals.
- Maintain sector OW rating on intact growth momentum, with companies near EBITDA break-even, building more capabilities in FY24.
The Indonesian Internet Economy outlook remains solid
Indonesia's internet economy is projected to reach US$109bn in 2025 by Google, Temasek, Bain & Co (GTBc). Albeit US$21bn lower than its previous projection due to prolonged recoveries, this still depicts robust 15% 2023-25 cagr, supported by fintech verticals as the driver (exh. 2a,b) and our expectation for stable GDP growth. GTBc also highlights significant yet underexplored market geographies (exh. 4a,b) as further growth sources.
On track for EBITDA-breakeven; more investments for value and growth
In our view both GOTO and BUKA have made strides to put them on track to deliver positive adj. EBITDA in 1H24. Meanwhile, we expect BELI to be EBITDA positive by end-2025 (Shopee and GRAB already positive). We note that the GMV growth of techs (Sea Limited, GRAB, GOTO) was bottoming out in 9M23, withstanding the tech downturn. While funding has dried up, Indonesian ecommerce players have continued with their investments: GOTO is expected to go all-out in fintech investments with encouraging traction; Blibli is building distinct 1P capabilities through constructing its biggest warehouse in North Jakarta and building a significant omnipresence with offline footprints; Tiktok committed US$1.5bn to Tokopedia; Lazada received injections 3x so far in FY23 (~US$1.8bn). Meanwhile, Shopee initiated the largest merchant fee escalations (+21-60%) with its peers making increases of smaller magnitudes.
The market is ripe for more partnerships and consolidation opportunities
With 125mn users, Tiktok is outperforming its peers Youtube, IG and FB as it has achieved formidable user engagement and is now the fastest growing GMV engine (29.0/ 26.5/ 15.2/ 14.4hrs spent/month/user, respectively). As Tiktok reenters Social Commerce with Tokopedia to comply with the latest regulation, we believe similar partnerships and license sharing could transpire in FY24. On the other hand, the government’s primary focus is boosting economic productivity and tech firms may unintentionally ride the tailwinds of product boycotts; the “Beli Lokal” campaign by TTS-Tokped was one positive response to the government’s recent regulation.
Sector OW on renewed growth with better fundamentals
We continue to see that internet players are better-positioned to address demand dynamically vs. brick-mortar stores, as indicated by rising ecommerce penetration to 32.1% in Indonesia vs. 20.7% in 2018, with still room for upside (85% in China). Overall, we believe homegrown platforms remain attractive partners to foreign techs to leverage on their strengths. Our top pick is GOTO (Buy, TP of Rp125), as we believe it is on the fast-track (post the Tiktok deal) to deliver ecommerce EBITDA profit with a focus on the untapped potential of fintechs. We also continue to like BELI (Buy, TP of Rp520) as a provider of the most comprehensive tech solution in the market.
