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Maybank Securities starts Grab Holdings at 'buy' with TP of US$4.32

Felicia Tan
Felicia Tan • 3 min read
Maybank Securities starts Grab Holdings at 'buy' with TP of US$4.32
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Maybank Securities analyst Lai Gene Lih has initiated a “buy” call on Grab Holdings with a target price of US$4.32 ($5.88). The target price offers a potential upside of 30% to Grab’s last-closed share price of US$3.32 as at March 25.

Lai’s report on March 28 comes after the NASDAQ-listed counter saw its shares fall some 70% since its Spac merger in December 2021.

According to the analyst, Grab’s risk-reward is deemed “attractive” in the next 24 months as it strives for profitability.

On Dec 2, 2021, shares in Grab made its debut on the NASDAQ, opening at US$13.06. The counter ended the day with its shares trading at US$8.75, down more than 20%.

The way Lai sees it, Grab, which is a regional superapp with businesses in ride-hailing, online food delivery and e-wallets, is a beneficiary of the economic digitisation and rising affluence in Southeast Asia.

Its superapp model also drives strong retention among its users.

See also: Tellimer starts Grab at 'buy' with TP of US$13

According to Lai, the one-year retention of users who use over three offerings stands at a retention rate of 86% compared to the 37% of users who use just one offering.

“This makes Grab more efficient with incentives, which we see as key to its ability to achieve profitability over time,” the analyst writes.

Grab has given a total of US$80 in incentives per monthly transacting users in 2019; US$74 in 2021 and is expected to give US$65 in 2025.

See also: DBS starts Grab Holdings at 'buy' with TP of US$9

Grab’s strong hyperlocal executive across Southeast Asia’s diverse countries, which allows it to scale its user base, is another positive.

“Grab has localised ‘boots-on-the ground’/ app-features/ transport modes, and even has its own proprietary maps and mapping technology to boost transit efficiency,” adds Lai.

In addition, Grab’s mobility offerings reduce travel time for its users compared to public transportation. For instance, it has reduced travel time for 20% of its users in Thailand and 70% in the Philippines.

On this, Lai expects the region’s economic reopening to drive the recovery of Grab’s mobility segment.

“Southeast Asia is witnessing a surge in increasingly affluent dual-income households, many with little time to cook at home and this is fuelling the food delivery and mobility businesses,” says Lai.

“Despite loosening restrictions, Grab observes deliveries becoming integral to daily life (average order value +41%/ transactions per monthly transaction user or MTU +28% vs. pre-Covid),” he continues.

As such, Lai has projected a mobility gross merchandise value (GMV) compound annual growth rate (CAGR) of 27% for the FY2021 to FY2025. He has also estimated normalised deliveries GMV CAGR of 28% for the same period. Normalised deliveries in FY2021 saw a 56% y-o-y increase, he notes.

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However, any price wars from Grab’s competitors, or higher-than-estimated incentives may hurt Grab’s profitability, warns Lai.

“Rising inflation and/or regulatory changes that require pension contributions by Grab to driver-partners could also hurt its path to profitability,” he adds.

Furthermore, a resurgence of Covid-19 related lockdowns is a risk for mobility. Finally, co-founder Mr. Anthony Tan has 63% of voting rights (and owns 6%), which may create risks for minority shareholders who may find it difficult to exercise control over the company’s direction, says Lai.

To this end, Lai has forecast GMV and net revenue CAGR of 27% and 31% over FY2021 to FY2025 respectively.

“We are projecting Grab to deliver adjusted EBITDA/PATMI break-even by FY2024 and FY2025, respectively,” he says.

“As regional economies reopen, stronger than expected mobility segment recovery may be a catalyst,” he adds.

Shares in Grab closed 14 US cents higher or 4.24% up at US$3.44 on March 28 (US time).

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