We reiterate our Buy recommendation on Bukalapak, with a target price of IDR456. This implies an upside of 62%.
Bukalapak is reporting its Q2 results on 29 July – we expect the results to pave the way for EBITDA positivity in FY 23.
Scale economics improving
We envisage the scale economics for Bukalapak improving in both of its key segments, the Mitra platform and Marketplace services:
The Mitra platform provides small businesses in Indonesia with e-commerce access. Bukalapak operates an online-to-offline network (O2O) and has a strong presence outside Indonesia's tier 1 cities.
Bukalapak's Marketplace services are its e-commerce business in Indonesia's tier 2 and 3 cities.
We expect robust growth in both segments due to stronger O20 Mitra performance, and better monetisation and take rate, which we see rising in FY 22 and FY 23 as e-commerce takes more of a hold across Indonesia, allowing Bukalapak to charge higher commissions.
Market share going up
Moreover, we expect a gradual rise in market share, driven by growth in tier 1 and 2 cities.
EBITDA positivity on the way
We see a clear pathway to EBITDA positivity on the back of improving operating metrics.
Robust cash metrics
And Bukalapak stands out for other reasons:
It is comparatively cheap, at 3x p/sales.
And the clincher for the valuation argument is that the market appears to underappreciate Bukalapak's low cash burn rate and high cash balance. The firm has a net cash balance of US$1.3bn and we expect an average FCF burn of US$118mn in the forecast period, which would fund a cash burn of 10+ years.
Valuation
Income, balance sheet and cash flow
