Viewing Grab’s over 30% sell-off in share price following its 4Q21 results as “unwarranted”, analysts at Citi Research have maintained their “buy” call for Grab with a lower target price of US$8.20 from US$9 previously.
The broad market weakness amid geopolitical instability might have prompted some investors to cut losses on their position, the analysts note in a March 4 report.
“With US$6.8 billion in net cash and its effective super app strategy, we view the sell-off as an enhanced buying opportunity and remain confident of Grab’s ability to execute and facilitate on-demand services,” the analysts add.
Citi adjusted their 2022-2024 net loss forecasts to US$1.95 billion, US$1.44 billion, US$901 million respectively, implying EPS of -49 US cents, -36 US cents and -23 US cents.
Meanwhile, DBS Group Research analyst Sachin Mittal has maintained his “hold” call on Grab with an unrevised target price of US$5.60, translating to 5x FY22 adjusted net sales.
He points out that Grab’s 4Q21 delivery gross merchandise value (GMV) of US$2.4billion with a sequentially stable take rate of 18% was in line with expectations. However, the adjusted EBITDA loss of US$84 million was worse than the expected loss of US$26 million.
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“This could be due to severe competition in Indonesia led by Shopee delivery service who secured 8% share in less than 9-month of its launch,” says Mittal.
Grab’s mobility GMV rose by 45% q-o-q to US$765 million versus DBS’s estimate at US$650 million, on the back of economic reopenings. The adjusted EBITDA of US$76 million versus US$64 million was in line with DBS’s estimate at US$81 million.
In 4Q21, Grab’s total payment volume (TPV) grew 29% y-o-y to US$3.4 billion, mainly due to the 5x y-o-y growth of “buy now, pay later” TPV as well as 3x y-o-y growth in loans disbursed which in turn attributed to 22% growth in monthly transacting users.
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Citi analysts forecast Grab's 1Q22 TPV to grow by 16% y-o-y to reach US$3.16 billion, reflecting negative impact from fintech company Ovo.
Breaking even
For 1Q22, Grab guided for deliveries GMV, mobilities GMV and financial services Pre-InterCo TPV to be between US$2.4 billion to US$2.5 billion; US$750 million to US$800 million; and US$3.1 billion to US$3.2 billion, respectively.
The 1Q21 GMV guidance seems soft, Citi analysts point out, mainly reflecting uncertainty from the pandemic that affects mobility and payment demand. “Nevertheless, management guided GMV for 2Q to 4Q22 to accelerate to 30%-35% y-o-y with deliveries to achieve breakeven by end 2023,” they add.
The mid-point of the guidance translates into 31% GMV growth in 2022, in line with DBS’s estimates but below its previous guidance of 38% growth, says Mittal.
“This variance can be explained by much slower fintech growth due to potential loss of a very sizable player — Tokopedia as a customer in Indonesia, which the company is trying to offset with new partners such as Lazada and Bukalapak,” says Mittal.
Grab’s projection for its delivery segment adjusted EBITDA to breakeven in 2023 is in line with DBS’s estimates. “Grab is progressing towards core food delivery segment adjusted EBITDA breakeven by the first half of 2023 and deliveries segment adjusted EBITDA to breakeven by the end of 2023. Overall, we don’t expect EBITDA losses to narrow in 2022,” says Mittal.
Shares in Grab closed US$1.95 lower or 37.28% down on March 3 at US$3.28.
Photo: Grab
