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Grab receives a more bullish call from Aletheia Capital; takeover of GoTo reiterated

From its April 2022 IPO price of 338 rupiah, GoTo’s shares initially hit as high as 442 rupiah before dropping to 114 rupiah

Aletheia Capital analyst Nirgunan Tiruchelvam has reaffirmed his thesis that Grab Holdings will acquire GoTo Gojek Tokopedia, given how the latter is seeing faltering food delivery business, while Grab has gone the other way with a bigger lead.

If the trend persists, Indonesia-based GoTo might suffer a cash crunch with its US$2 billion in net cash depleting by end of FY2023. Grab, on the other hand, holds some US$5.5 billion.

While keeping his “buy” call on Grab, Tiruchelvam has raised his target price to US$4.60 from US$4.

From its April 2022 IPO price of 338 rupiah, GoTo’s shares initially hit as high as 442 rupiah before dropping to 114 rupiah on Jan 24.

Tiruchelvam believes that Grab could acquire GoTo with the support of a white knight, as certain industry trends aren't in GoTo's favour.

According to an industry report by Momentum Works, gross merchandise value of food delivery in Asean grew by 5% in 2022. This was a significant slowdown from the 30% growth seen in 2021, as more people eat out instead of ordering deliveries with the easing of the pandemic curbs.

According to Momentum Works, Grab’s share of Asean food delivery was 54%, outclassing competitors including GoTo, which had a corresponding share of 13%.

While Grab has grown its share consistently over the past three years, GoTo’s share has been stagnant, raising chances of it running out of cash by end of FY2023, says Tiruchelvam.

“This development could not only rescue GoTo but also enhance Grab’s value proposition by underlining its dominance and cutting operating expenses.

“We raise the probability to Grab acquiring GoTo with US$3.5 billion of equity financing in FY23 from 55% to 65% with the recent industry report,” adds Tiruchelvam.

On its part, Grab is “closing in on a turning point in its EBITDA performance at a segmental level,” says Tiruchelvam.

For its 3QFY2022 ended Sept 30 2022, Grab’s delivery segments recorded adjusted EBITDA positivity (5% of revenue) for the first time, while its mobility segment generated a record adjusted EBITDA margin of 12.5% in the same quarter.

Tiruchelvam expects the current FY2023 to be the first full year of EBITDA positivity for the delivery segment, and free cash flow positivity to follow in the coming FY2024.


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