Citi Research analyst Alicia Yap is increasingly positive on Grab’s execution in delivering sustainable improvement in operations after hosting the company’s CFO Peter Oey at Citi’s 31st annual Global Tech Conference on Sept 8.
In her note, Yap highlights Grab’s commitment in lowering cost to broaden the affordability of more consumers, driving higher income for the driver-partners and merchant-partners. More importantly, Grab continues to optimise its operations and invest in product innovation, she adds.
Grab also shared with Citi a few reasons behind the decent results it achieved in 2QFY2023 ended June, which was announced on Aug 23. It includes deliveries gross merchandise volume (GMV) regaining growth at 10% q-o-q, which was driven by the solid momentum of GrabUnlimited as well as the lowering of costs mentioned.
With improving adjusted ebitda margins for delivery and new initiatives and continued scale down of incentives, the financial year’s adjusted ebitda loss forecast was revised up to -US$30 million to US$40 million, with group breakeven timeline moved forward one quarter to 3QFY2023 ended September.
“More importantly, management reiterated that delivery GMV will continue to experience q-o-q growth in 3QFY2023 and into 4QFY2023 following resumption of growth in 2QFY2023,” says Yap.
About a third of the delivery GMV was contributed by GrabUnlimited subscribers. Transaction frequency of subscribers is four times higher, with a stronger retention cohort than non-subscribers. The penetration of GrabUnlimited has served as one of the growth drivers in recent quarters, she notes.
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Meanwhile, Grab sounded optimistic on the future of on-demand mobility growth, says Yap. At the current 84% of the pre-Covid level, the company is confident that mobility will return to pre-Covid levels by the end of the year.
“Near-term drivers include return of tourism, especially from Chinese tourists while ongoing efforts include growth into tier-2 and tier-3 cities, rebuild of 4-wheel vehicle products by investing in drivers and vehicles as well as introduction of new products and making mobility affordable to a large majority of consumers,” says Yap.
On its financial services front, GrabPay’s service fits well into its super app initiative with cross-sell synergies, says Yap. Currently, the majority of the micro-lending loans are offered to Grab’s drivers and merchants to support working capital among others, which management believes is relatively low risk given its access and understanding of partners’ financial situation.
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Citi maintains “buy” on Grab with a target price of US$5.20.
Shares in Grab closed 5 US cents higher or 1.34% up on Sept 12.
