Citi Research has initiated coverage on Grab Holdings with a “buy” recommendation and a sum-of-the-parts (SOTP) target price of US$12 ($16.23).
The target price is based on 5.5 times FY2024 revenues for Grab’s delivery business, 15 times FY2024’s adjusted EBITDA for its mobility business, 20 times FY2024 revenue for its financial services arm, three times FY2024 revenue for Grab’s enterprise and new initiatives, and 50% discount on cash, writes analyst Alicia Yap in a Dec 15 report.
Comparing to the other super app platforms in Southeast Asia, Yap believes Grab benefits “from its ability to capture larger volumes of consumer data given the higher frequency of delivery and mobility demand than for ecommerce shopping, suggesting easier cross-sell of financial services products”.
The group has a wider geographic footprint and larger market share than its competitor Gojek. It is also “uniquely positioned” to capture a resumption of cross-border demand post-pandemic, Yap adds.
That said, Grab has a lower spending per transaction and per user compared to its other competitor Sea Limited.
It may also face more headwinds with the resurgence of Covid-19 cases, says Yap.
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“Grab also lacks a high-margin gaming business and global exposure given its Southeast Asia focus,” she adds.
To this end, Yap says she is positive on Grab due to its “powerful super app ecosystem with expanding use cases”, “opportunities from rising online penetration of on-demand local services”, “strong brand equity and technology-centric investment philosophy” and “multiple growth drivers through category expansions and wallet share spend”.
For the FY2021 to FY2023, Yap expects Grab’s total gross merchandise value (GMV) to grow by 30%, 48% and 39% to US$16.2 billion, US$24 billion and US$33.3 billion for the FY2021, FY2022 and FY2023 respectively.
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Grab’s adjusted net sales are also estimated to rise some 49.4%, 46.4% and 40% to US$2.3 billion, US$3.3 billion and US$4.7 billion for the FY2021, FY2022 and FY2023 respectively, while adjusted EBITDA for the FY2021, FY2022 and FY2023 to US$761 million, US$988 million and US$600 million respectively.
“We forecast adjusted net sales compound annual growth rate (CAGR) [for the FY2021 to FY2025] for deliveries/ mobility/ financial services/ enterprise and new initiatives at 33%/ 36%/ 68%/ 46% with 2022 adjusted net sales split at 61.3% / 25.6%/ 6.1%/ 7.1%,” says Yap.
Potential catalysts for Grab’s share price include an earlier-than-expected profitability in deliveries, as well as the launch of a digital bank operation in the 1HFY2022.
In her Dec 23 report, Yap has assigned a “high risk” rating on Grab as “the stock has traded in its own right only since early December 2021 (having been merged into a Nasdaq-listed special purpose acquisition company)”.
“Key investment risks that could mean the stock fails to achieve our target price include: intense competition; regulatory uncertainty across markets; policy changes toward the gig economy; labour supply, cost and benefits; shifts in user behaviour; the impact of the pandemic and any other natural disasters; and volatility as locked-up shares are released into the market,” she reiterates.
Shares in Grab closed 19 US cents higher or 2.73% up at US$7.15 on Dec 31 (US time).
Photo: Grab's co-founders Tan Hooi Ling (left) and Anthony Tan at the "bell ringing" ceremony.
