Editor’s note: The story has been updated to reflect an EV-to-sales value based on Bukalapak’s post-IPO market-cap and upwardly revised 2021 sales forecast amid a second wave of COVID-19.
The IPO of Indonesian marketplace Bukalapak, which opens for subscription on July 28, appears to be overpriced based on various valuation parameters.
However, to subscribe or not to subscribe to the shares is an open question, as there is more to the company than what meets the eye, say analysts DealStreetAsia spoke to.
The Emtek group-backed marketplace — which will be the first among Indonesian unicorns to go public — plans to raise up to $1.5 billion by issuing 25.76 billion new shares at an offer price of Rp 750-850 per share. At that range, many traditional parameters suggest the shares are in an overpriced zone.
Valuation metrics flash red
We evaluated Bukalapak based on three key indicators.
Price-to-book value (PBV): The price to book value (PBV) of a company is used to compare its market capitalisation to its book value, which is the net value of its assets.
The current book value per share (BVPS) of Bukalapak has been estimated at Rp22.1, according to Anton Hermansyah, a senior investment information analyst at Korea Investment and Sekuritas Indonesia.
Therefore, if the Bukalapak IPO happens at Rp 800 per share — i.e the middle of the price band — existing shareholders could sell their shares at a PBV ratio of 36.2 times (Rp 800/Rp 22.1), estimates Hermansyah.
This suggests a premium compared to peers. Even for Amazon, the highest recorded PBV in the last 13 years was only 28 times. More recently, Coupang — South Korea’s largest e-commerce company, which conducted an IPO in the US in March this year raising $4.6 billion — had a PBV of 26.1 times. Coupang’s shares are down almost 18% since its listing on NYSE.
“If we take a traditional metric [like PBV], Bukalapak shares would be expensive. However, considering it is the first unicorn listed on IDX, it could be different from Coupang,” said Hermansyah.
Moreover, Bukalapak’s PBV, after a successful IPO, will be at a more acceptable level, Hermansyah added. Since the company is issuing 25 billion new shares in the public listing, its equity value will increase by Rp 20.6 trillion, assuming a price per share of Rp 800. This will increase BVPS to Rp 216.4 and PBV to 3.7 times, Hermansyah explained.
Enterprise value-to-sales: Another simple metric to measure Bukalapak’s valuation is enterprise value-to-sales ratio. The metric compares the total value of the company to its sales. A lower value indicates a fair valuation.
To calculate EV/sales for Bukalapak, we asumed Enterprise Value is equal to the company’s market capitalisation post-IPO. For sales, we have made our own forecast for 2021, in the absence of a company guideline.
Based on Bukalapak’s Q1 2021 performance, we estimate its 2021 revenue to be Rp1.69 trillion. We also expect that the second wave of COVID-19 will drive more people to shop online, and boost sales growth to 30%. The second assumption will result in revenues reaching Rp1.76 trillion.
Based on these figures, the EV-to-sales ratio turns out to be 32.56-38.63x (Detailed calculation is shown below). This ratio is much higher than Sea group and is also very close to Shopify’s.
EV-to-forward-GMV ratio: Bukalapak’s valuation of $5.6 billion also suggests an EV-to-forward-GMV ratio of 1.5x, higher than that of rival Tokopedia’s 0.5x, which has atleast thrice the Gross Merchandise Value (GMV) and web visits as Bukalapak, noted analysts Nathan Naidu and Matthew Kanterman for Bloomberg Intelligence. The EV-to-GMV ratio of Bukalapak is also much higher than Alibaba’s 0.4x.
The high premium suggests investors have an appetite for Southeast Asian tech and digital platforms due to a lack of listed alternatives, the analysts added, but “Bukalapak’s market share in Indonesia does not justify its valuation.”
Reading between the numbers
Despite the ratios looking expensive, Angus Mackintosh, an analyst from CrossASEAN Research, said Bukalapak’s path to profitability is much clearer than its peers Tokopedia and Shopee.
“Bukalapak has far lower promotional costs and these costs are also falling, which means the company may soon start to be valued on EV/Gross Profits rather than purely on sales,” said Mackintosh.
Bukalapak’s losses narrowed in 2020 to Rp 1.349 trillion ($92.66 million), compared with Rp 2.8 trillion ($191.99 million) in 2019. Net sales in 2020 stood at Rp 1.35 trillion, a nearly 26% increase from the previous year and an about four times increase from 2018’s figure of Rp 291.9 billion.
Marketing and sales expenses decreased 34.5% from Rp 2.32 trillion in 2019 to Rp 1.52 trillion in 2020, as it started a cash efficiency strategy amid the pandemic.
Mackintosh also highlighted that Bukalapak’s 7 million Mitra Bukalapak (mom-and-pop-stores or individual agents) partners are the key source of revenue for the platform. The platform can make the Mitras stick to it, given the range of products it offers.
“Instead of offering freebies and heavily discounted products, Bukalapak looks to enable Mitras by giving them access to a wider array of products that they can sell for a small fee (1-2%),” Mackintosh said.
The backing of Grab (indirectly) and Bank Rakyat Indonesia (BRI) also bodes well for Bukalapak. Grab owns around 5% shares in the Emtek group, which in turn owns about 32% shares in Bukalapak through its subsidiary PT Kreatif Media Karya (KMK). BRI Ventures may integrate its unit Bank Rakyat Indonesia’s products and services with Bukalapak. State-owned BRI is the largest lender in Indonesia which focuses on SMEs and rural areas, a segment that aligns with Bukalapak’s business.
Expect high demand
All said and done, Bukalapak’s IPO will most likely be oversubscribed.
“Some investors are betting on the long-term potential of digitising warungs. Another group does not believe in the e-commerce business, but they will still buy the shares because Bukalapak could soon become a constituent of major stock market indices. The last group will invest due to FOMO (Fear of Missing Out),” said an analyst from a private bank, who did not wish to be named.
Digitalising warungs has become a popular investment theme globally. Besides Bukalapak, other B2B commerce firms such as GudangAda, Warung Pintar, Ula, Super, and digital bookkeepers, BukuWarung and BukuKas have attracted investments. Similarly, in India, players like ShopKirana, Jumbotail, Khatabook, and Reliance that empower mom-and-pop stores and have raised big investments.
However, none of the startups are profitable. “It [Lack of profits] doesn’t mean the business model won’t succeed. Bukalapak has raised huge funding, and people are now looking at how it can achieve positive EBITDA,” said the analyst quoted above.