CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have kept their “add” call on Grab with a higher sum-of-the-parts (SOTP) target price of US$4.10 ($5.71) from US$3.60 previously, believing that the easing competitive landscape enables Grab to accelerate their path to profitability.
The analysts say Grab’s 2QFY2022 revenue of US$321 million was a strong beat, led by strong mobility recovery. The revenue result was 14% above CGS-CIMB’s estimates, while the core net loss of US$288 was in line with its expectations.
Ong and Tan highlight that the guidance for core food and overall deliveries segment’s breakeven timelines were brought forward. While the profitability push and foreign exchange headwinds are likely to dampen gross merchandise value (GMV) growth in 2HFY2022, Grab narrowed its FY2022 revenue guidance to the upper end of previously announced range, they add.
Grab’s mobility GMV saw strong recovery to US$834 million amid Southeast Asia’s post-Covid-19 reopening. During the period, rides returned to 67% of pre-pandemic levels. CGS-CIMB expects further demand recovery going into 2HFY2022.
The analysts expect continued improvement for the segment in 2HFY2022, as Grab is able to taper driver incentives with better driver supply stabilisation; helped by stronger driver earnings per hour.
Deliveries GMV of US$2.5 billion was dragged by foreign exchange headwinds and near-term softening of food delivery demand with resumption of dine-in. Nevertheless, with lower incentive levels, the segment revenue grew 47% q-o-q while adjusted negative ebitda narrowed 39% q-o-q.
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“To drive customer loyalty, Grab expanded its pilot subscription programme, GrabUnlimited to five markets — users can pay a flat monthly fee to enjoy deals across Grab’s ecosystem. The goal is to expand cross-sell opportunities and grow order frequency, thereby growing profit per user and further differentiate Grab from pure-play food delivery or mobility companies. Grab has seen early encouraging metrics from the pilot,” the analysts highlight.
Meanwhile, Citi Research analysts Alicia Yap, Nelson Cheung and Vicky Wei — which have maintained their “buy/high risk” rating with a SOTP target price of US$5 — points out that Grab’s deliveries GMV came below their estimate while total net loss was also slightly wider than their forecast.
They further highlight that Grab’s 3QFY2022 delivery GMV guidance of US$2.4-US$2.5 billion was below their pre-result estimate by 8%. “We will seek more clarity on the slower deliveries business segment and overall competitive landscape in the region,” they add.
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Maybank Securities, on the other hand, is keeping its “sell” call on Grab with a higher target price of US$2.83 from US$2.29 previously. Analyst Samuel Tan says even after increasing its EV/S multiple to 1.4x for delivery and 1.8x for mobility to reflect stronger profitability prospects, Grab’s target price of US$2.83 still appears overvalued.
Tan notes that Grab has narrowed FY22 revenue guidance to US$1.25 billion-US$1.3 billion, indicating increasing clarity for the financial year.
“Food-security issues could be peaking with the United Nations’ Food and Agriculture Organization index indicating a decline in July 2022, although droughts in China, the US and Europe may cause a resurgence. The impact of rising interest rates and an inverted yield curve on Grab and other tech stocks appears to have weakened, but global monetary policy actions remain hawkish,” says Tan
Shares in Grab closed 44 US cents lower or 12.22% down on Aug 25 at US$3.16.
