Aletheia Capital has initiated “buy” on Grab Holdings with a target price of US$4 ($5.37). The target price implies an upside of 24% based on Grab’s price of US$3.20 as at analyst Nirgunan Tiruchelvam’s report dated Jan 3.
In his report, the analyst notes that Grab has emerged as the super app for Asean, even though its super app status has not been recognised by the market. The group now operates in 400 cities in eight countries including Indonesia, which has a population of 270 million.
“[Grab’s] adjusted net revenue as a percentage of gross merchandise value (GMV) is 12%, while its take rate has risen threefold since 2018. This is better than Alibaba,” says Tiruchelvam.
“Grab has the potential to be re-rated as an all-encompassing super app like Alibaba. It is becoming a one-stop-shop for ride-hailing, food delivery, payments and other services,” he adds.
Another plus for Grab is that its extended cash burn may be about to end.
“Grab has reached an inflection point in its ebitda performance at a segmental level. In 3QFY2022, Grab’s delivery segments recorded adjusted ebitda positivity (5% of revenue) for the first time,” the analyst writes.
See also: Test debug host entity
“The mobility segment generated record adjusted ebitda margin of 12.5% in 3QFY2022,” he adds, expecting Grab to record its first full year of ebitda positivity for both its delivery and mobility segments in FY2023.
Furthermore, the analyst projects Grab to see ebitda and free cash flow (FCF) positivity in FY2024.
“The inflection point is imminent because of a rise in ride-hailing and food delivery GMV, as well as a cut in incentives,” says Tiruchelvam.
See also: Maybank downgrades ComfortDelGro in contrarian call over Addison Lee acquisition worries
Cementing its dominance in the region
With Grab’s main competitor in the Asean region, GoTo, facing a cash crunch, Grab has an opportunity to acquire the latter after a 78% drop in GoTo’s share price, the analyst points out.
“This move could not only rescue GoTo but also enhance Grab’s value proposition by cementing its dominance and cutting operating expenses. We ascribe a 55% probability to Grab acquiring GoTo with US$3.5 billion of equity financing in FY2023,” he says.
On his target price, Tiruchelvam values Grab’s ride-hailing and food delivery businesses on a P/GMV basis of 0.45x. The digital banking business is valued on a price-to-tangible book value (P/TPV) multiple of 0.13x, he says.
“We expect a high probability of a value-accretive acquisition of GoTo by Grab with the support of a strategic investor,” he adds.
Shares in Grab closed 24 US cents higher or 7.45% up at US$3.46 on Jan 3 (US time).
