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Analysts positive on Grab amid good prospects and easing competitive landscape

Khairani Afifi Noordin
·3-min read

Grab’s delivery ebitda turned profitable three quarters ahead of targeted schedule, the analysts highlight.

Analysts at Maybank Securities, CGS-CIMB Research and Citi Research are positive on Grab following the company’s 3QFY2022 ended September results announcement.

Although Grab recorded flattish gross merchandise value (GMV) q-o-q, its significant reduction in incentives led to stronger revenue and narrower adjusted ebitda losses in 3QFY2022, notes CGS-CIMB analysts Ong Khang Chuen and Kenneth Tan.

Grab’s 3QFY2022 net loss of US$327 million ($450 million) was 16% and 11% narrower versus CGS-CIMB’s and Bloomberg’s consensus loss forecasts respectively. The CGS-CIMB analysts have reiterated “add” on Grab, with an unchanged target price of US$3.80.

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Meanwhile, Maybank’s Kelvin Tan — who has upgraded his call to “hold” with a higher target price of US$3.40 from US$2.83 previously — notes that Grab’s mobility segment saw good demand recovery. The segment’s GMV at US$1.09 billion has exceeded expectations, on the back of robust demand and recovering driver supply following easing of Covid-19 restrictions.

Grab’s mobility adjusted ebitda as a percentage of GMV edged up to 12.4%, giving Tan more confidence to shift his mobility peer valuation to on par with Uber, despite Grab’s smaller scale. “Grab’s monthly average active driver-partners in 3QFY2022 was 80% of 4QFY2019 pre-Covid levels. We believe there is still room for Grab to capture demand recovery,” he adds.

Grab also recorded strong growth in 3QFY2022 deliveries revenue, up 250% y-o-y driven by tapering incentives and rising commission rate. Delivery GMV at US$2.45 billion is in line with the company’s guidance on the back of economic reopening and actions to increase profitability.

Citi analysts Alicia Yap, Nelson Cheung and Vicky Wei notes that Grab’s delivery ebitda turned profitable at US$9 million or 0.4% of GMV, three quarters ahead of targeted schedule due to efficient subsidies optimisation despite its topline affected by foreign exchange (forex) headwind.

However, they also highlight that Grab’s financial services ebitda were slightly below their forecast on forex and strategic shift to on-Grab transactions, as well as costs associated with its digital banks. The Citi analysts have kept their “buy” call on Grab with a “high risk” rating and an unchanged target price of US$5.

Moving forward, Grab sees further recovery in the mobility segment and stable performance in the food delivery segment. Aside from tightening its GMV guidance for FY2022 slightly towards the upper end, Grab has also raised its revenue guidance to US$1.32 billion-US$1.35 billion, with the mid-point implying 4QFY2022 revenue growth of 233% y-o-y, CGS-CIMB highlights.

The analysts believe an easing competitive landscape could enable Grab to accelerate its path to profitability, citing newsflow on China’s border reopening and Grab’s competitor’s market exit as some of the rerating catalysts.

Maybank’s Tan is cautiously optimistic about Grab’s prospect, amid the current inflationary environment coupled with tight driver supply and potential recession on the back of the company’s strong cash position. “We currently do not expect Grab to turn to the market for further capital before it turns free cash flow positive in FY2024,” he adds.

Citi analysts believe Grab’s effort on scaling back subsidies and focus on higher quality users — especially those with GrabUnlimited — have been paying off. “Investors are likely to revisit the stock following a couple of quarters of solid prints,” they add.

Shares in Grab closed 1 US cent lower or 0.31% down on Nov 18 at US$3.21.

 

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