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Analysts positive on Grab following increased revenue guidance and accelerated profitability timeline

Khairani Afifi Noordin
·3-min read

Grab's increased FY2023 revenue guidance took Citi Research analysts by surprise.

Analysts at CGS-CIMB and Citi have kept their "add" and "buy" calls on Grab after the company announced above expectations revenue for its 4QFY2022 ended December.

For its 4QFY2022, Grab’s revenue stood at US$434 million ($582 million), on the back of the growth in its mobility and deliveries segments, a reduction in incentives as well as a change in business model for certain delivery offerings in one of its markets.

Grab had also increased its FY2023 revenue guidance, which took Citi Research analysts Alicia Yap, Vicky Wei and Nelson Cheung by surprise. The revenue guidance was raised to US$2.2-US$2.3 billion or 54%-60% increase y-o-y, up from the previous guidance of 45%-50% y-o-y.

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The company had also guided adjusted ebitda to be between -US$275 million to -US$325 million, expecting the group adjusted ebitda breakeven in 4QFY2023 versus the previous guidance of 2HFY2024. This is ahead of CGS-CIMB’s Ong Khang Chuen and Kenneth Tan’s 1QFY2024 breakeven expectation.

Pointing out that Grab’s adjusted ebitda guidance is weaker than their forecast, Ong and Tan believe that this reflects a conservative guidance by Grab, based on the commentary provided on driving sustainable growth.

Grab’s deliveries segment achieved an adjusted ebitda to gross merchandise value (GMV) margin of 2% in 4QFY2022, a significant expansion y-o-y. The company said the majority of its six core markets were profitable on an adjusted ebitda basis during the quarter, and those markets are already close to its steady state margin of 3%.

Meanwhile, its mobility segment GMV grew by 50% y-o-y, driven by airport rides. To better capture tailwinds from China’s tourism recovery, Grab has forged a partnership with Tencent’s WeChat to enable its users to book ride-hailing services via the Grab mini-app, Ong and Tan note.

For its fintech segment, Grab expects total payments volume (TPV) to moderate down in 2023, consistent with the refocus on driving ecosystem transactions and increase in profitable transactions such as lending. The company expects revenues to grow healthily, with stabilising segment adjusted ebitda despite increasing investment costs due to the upcoming launch of digibanks in two countries later this year, Citi highlights.

“For digital payment, Grab plans to reduce the spending on consumer incentives as the company moves from off-platform digital payment use cases. Moreover, management will also focus on value-added, from lending and insurance as important use cases to drive growth. For digibank, management also saw early positive signals from limited launch in Singapore, which is on track to launch in Malaysia and Indonesia this year,” the Citi analysts say.

CGS-CIMB’s Ong and Tan continue to believe that the easing competitive landscape can enable Grab to accelerate its path to profitability. Its target price of US$4.50 is based on 3.7x FY2024 EV/adjusted sales for Grab’s on-demand services, 0.1x FY2024 EV/TPV for its financial services segment and the analysts’ 15x FY2024 EV/EBITDA estimate for its enterprise and new initiatives segment.

Meanwhile, Citi’s target price of US$5 is based on 2.2x FY2024 adjusted revenues for the delivery business, 11x FY2024 adjusted ebitda for the mobility business, 10x FY2024 adjusted revenues for financial services, 0.5x FY2024 revenues for enterprise and new initiatives and 50% discount on estimated 4QFY2022 year-end cash.

Shares in Grab closed 29 US cents lower or 8.29% down on Feb 23 at US$3.21.

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