DBS Group Research analyst Sachin Mittan has maintained “hold” on Grab with a lower target price of US$2.58 from US$2.85 previously, shifting away from a revenue-based multiple to a normalised long-term ebitda-based multiple as the market focuses on probability.
The target price was arrived at by the assumption of 12% ebitda margin in FY2027 and using 12x EV/ebitda based on its peers, discounted back by 12% annually, the analyst explains.
“For Grab, we project a 12% ebitda margin, leading to US$1.1 billion ebitda in FY2027. This is based on projected margins of 11%-12% for mature peers such as Uber and DoorDash in 2024, which do not have the cross-selling benefits of Grab.
“Grab currently has a net cash of US$5.6 billion, out of which we expect US$4 billion to be burnt over the next four years before achieving ebitda breakeven. Thus, we add US$1.6 billion net cash to derive our equity value,” says Mittal.
Citing Bloomberg, Mittal notes that Grab expects a slower revenue growth of 45%-55% in FY2023 as the tech giant focuses more on achieving ebitda breakeven instead of achieving gross merchandise value (GMV) growth.
The company also expects to achieve ebitda breakeven by 2HFY2024 versus DBS’s earlier expectations of FY2025. According to the guidance outlined in 2QFY2022 results, Grab expects US$1.25 billion to US$1.3 billion revenue for FY2022, implying an average growth of 89% to 106% in Mittal’s earlier estimate.
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“Our earlier FY2023 projections imply a 77% revenue growth. Hence, even the higher end of the guidance is much lower than our expectations,” says Mittal.
For Grab, mobility ebitda has been improving along with rising GMV and revenue, while ebitda losses in the deliveries segment has been narrowed. DBS expects that there could be some slowdown in the financial services segment as ebitda losses have increased.
He notes that Grab expects to launch digibank operations in Malaysia and Indonesia in FY2023 and that significant ebitda losses are expected in the fiscal year. “However, lending services are expected to enhance the profitability profile. Grab targets to achieve ebitda breakeven for digibank operations in FY2026. Therefore, we have revised our projections accordingly.”
Shares in Grab closed at an unchanged US$2.38 on Oct 20.
