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Foodpanda deal could be ‘value-accretive’ for Grab, says HSBC

HSBC's analysts expect Grab to turn adjusted ebitda positive in 3QFY2023 and FCF-positive in FY2024.

HSBC Global Research analysts Piyush Choudhary and Rishabh Dhancholla are keeping their “buy” call on Grab with an unchanged target price of US$4.40 ($6.01).

The analysts’ report dated Sept 21 comes after the company was reported to be a potential buyer of Foodpanda on Sept 20.

Foodpanda’s parent company, German-listed Delivery Hero, had confirmed that it was potentially selling its Foodpanda business in its Southeast Asian markets of Singapore, Malaysia, Philippines, Thailand, Cambodia, Myanmar and Laos. The group added that negotiations are in the preliminary stages with the consideration yet to be discussed.

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According to German publication Wirtschaftswoche, the deal could be worth over EUR1 billion ($1.46 billion). Grab has not issued any comment as yet.

To Choudhary and Dhancholla, the in-market consolidation in the food delivery business would be “positive” for the industry as it could lead to better unit economics and higher margins.

If Grab were to buy the Foodpanda businesses, it could acquire a sizeable market share of over 80% in many of the Southeast Asian countries that were named by Delivery Hero, they add. However, the main issue would be to secure regulatory approval across these countries, the analysts point out.

“The markets in question generated revenue of EUR0.9 billion - EUR1.0 billion for Delivery Hero in FY2022 in 2022. If a transaction were to happen at around EUR1 billion, this would imply price/sales of 1.0-1.1x – potentially value-accretive for Grab, which is trading at 2.7x 2023e EV/adjusted sales,” say Choudhary and Dhancholla. “More importantly, consolidation would lead to structurally higher margins for the company driven by cost synergies, lower incentives and lower customer acquisition cost.”

Even without the potential deal, the analysts remain positive on Grab as they believe that the company should be able to strengthen its leadership position in its key categories which are ride-hailing and food delivery.

“[This is] due to ecosystem synergies and its ability to continuously roll out innovative and affordable products,” say the analysts. “The company is well capitalised and has the potential for multi-year growth as user penetration is low in its key segments. We expect Grab to turn adjusted ebitda positive in 3QFY2023 and free cash flow (FCF)-positive in FY2024,” they add.

Shares in Grab closed 3 US cents lower or 0.87% down at US$3.43 on Sept 22.

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