DBS Group Research has initiated “buy” on Grab Holdings with a 12-month target price of US$9 ($12.19), representing a 25% upside to its last-traded price of US$7.22 on Jan 3.
The target price also translates to 6.5 times of FY2023’s adjusted revenue.
“We assign a 30% premium to Grab for its multi-sector leadership, cross-selling synergies and higher growth potential compared to DoorDash, Uber and PayPal in their respective sectors,” writes analyst Sachin Mittal on Jan 4.
“We assign 7.8 times enterprise value (EV) to FY23F adj revenue for delivery, 3.2 times for mobility and 7.8 times for fintech & others, Grab’s net cash is [around] US$7.5 billion,” he adds.
Bear target price estimate
That said, Mittal has also given Grab a bear target price of US$6, in the event of rising competition and macro weakness.
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The bear target price is based on 5 times of FY2023’s adjusted revenue, says Mittal.
“This scenario assumes 20% lower FY2023 adjusted revenue than our base case, due to GoTo becoming a bigger threat in Indonesia, Shopee across fintech in Southeast Asia and adverse impact of lockdowns on the mobility business,” he adds.
How lucrative is Grab?
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At present, Grab has a mobility market share of around 80% across Southeast Asia, which exceeds Uber’s share of 69% in the US.
The group’s 50% market share in food delivery is also comparable to its closest competitor, Doordash’s share in the US.
Meanwhile, Grab’s fintech transaction processing volume (TPV) stood 29% lower than its competitor Sea Ltd in 3QFY2021.
The way Mittal sees it, “rising fintech competition could delay group EBITDA breakeven to FY2024 versus its own projections of a FY2023 breakeven”.
In terms of its mobility and delivery business, Grab enjoys a less lucrative margin potential compared to its e-commerce business, which suggests a slight valuation discount to its e-commerce peers.
“[The] e-commerce ecosystem is 5 times the combined size of food delivery & mobility; batch processing makes e-commerce delivery network more efficient than quick delivery businesses; e-commerce merchants advertise on the platform, while Grab incurs sales & marketing costs for its drivers & merchants,” says Mittal.
That said, Grab does offer higher growth compared to its Internet peers, with an annual adjusted revenue growth of 39% over FY2021-2023, which similar to 41% growth at Sea Limited.
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The rate is also higher than 24% at DoorDash and 36% at Uber.
“Grab is trading at 5 times EV to FY2023 adjusted revenue compared to 6 times for Sea Ltd and Doordash. We expect both Grab and Sea Ltd to re-rate to reflect their exceptional growth potential,” he adds.
Shares in Grab closed 7 US cents higher or 0.97% up at US$7.29 on NASDAQ on Jan 4 (US time).
Photo: Grab's co-founders Tan Hooi Ling (left) and Anthony Tan at the "bell ringing" ceremony.
