DBS Group Research analyst Sachin Mittal has maintained “hold” on Grab with a decreased target price of US$2.93 — 47% lower than the previous US$5.60.
Mittal explains that the lower target price is due to DBS revising its valuation metrics to 2.8x 12-month forward enterprise value (EV) to revenue. This is in line with Grab’s global peers Uber and Doordash, which are trading at 12-months forward EV to revenue of 2.8x and 1.4x respectively.
“We have applied the higher multiple of 2.8x as Grab dominates in both food delivery and mobility segments across Southeast Asia and offers superior revenue growth. However, both Uber and Doordash generate positive adjusted EBITDA while Grab may take at least 24-months to reach positive adjusted EBITDA in our view,” says Mittal.
Meanwhile, Maybank Securities analysts Lai Gene Lih and Samuel Tan have kept their “buy” call on Grab with a lower target price of US$4.25 compared to US$4.32 previously. This is due to the analysts’ lower net-cash forecast, despite higher segmental valuations.
Grab’s 1QFY2022 total adjusted EBITDA loss of US$287 million was higher than DBS’s expectations of US$200 million. This was due to weaker mobility EBITDA, higher losses in delivery coupled with rising regional corporate costs.
Grab’s delivery segment recorded adjusted EBITDA loss of US$56 million versus US$84 million loss in 4QFY2021, representing 62% of DBS’s FY2022 loss expectations. Mittal points out that Jaya Grocer stores were consolidated under the delivery segment and will be completing the consolidation in 2HFY2022.
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Similarly, mobility segment adjusted EBITDA was recorded at US$82 million, accounting for 18% of DBS’s FY2022 estimate.
Despite this, the Maybank analysts see strong mobility recovery as a catalyst, given the segment’s stronger profitability versus deliveries. “From Feb 2022 to Apr 2022, mobility gross merchandise value (GMV) rose 32%, which we see as sustained momentum for ride-hailing as economies reopen.
“As cross-border traveling resumes, higher value and margin airport rides have climbed to 6% of mobility GMV. In March 2022, Grab’s active driver base was 76% of pre-Covid-19 levels, but Grab remains confident driver supply will stabilise and incentives will taper in 2H22,” they add.
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As Grab will continue to offer promotions in mobility and financial services, Mittal has increased his FY2022/FY2023 EBITDA losses estimates. “We don’t expect losses to narrow amidst rising commission rates as mobility is still recovering.
“Grab will require significant promotions to increase its supply of drivers to the rising demand following the easing of movement restrictions while financial services will continue to burn cash as it continues to promote the penetration of its lending product,” he adds.
DBS projects a revenue CAGR of 81% over FY2021-FY2023, expecting a delay in achieving EBITDA breakeven to FY2024. Mittal now projects adjusted EBITDA loss of US$1 billion/US$706 million in FY2022/FY2023, compared to his earlier estimates of US$732 million/US$384 million.
Shares in Grab closed 7 US cents higher or 2.23% up on May 20 at US$3.21.
