To The Moon

CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have initiated coverage on Grab with an “add” rating and sum of the parts-based target price of US$3.60 ($4.97).

The analysts' valuations include US$1.60 per share for the on-demand services (deliveries and mobility), 50 US cents per share for the financial services segment and 40 US cents per share for the enterprise and new initiatives segment. The target price implies 4.9x FY2023 P/adjusted sales.

“We like Grab for its strong regional presence with market leadership across its key segments and its superapp strategy to tap on rapid Southeast Asia digitalisation which could open up further potential growth in total addressable market through new segments.

“We believe that at its current valuation of 5.4x FY2023 EV/sales, investors have yet to fully appreciate the easing competition in Southeast Asia, which could accelerate the path to profitability for Grab,” they added.

In their July 29 report, the analysts highlighted that the global market weakness has impacted valuations of both public and private companies. As cheap financing is no longer easily accessible, new economy players have to chart a path to profitability.

“We have observed a visible shift in strategy for new economy players to balance growth and profitability. Our channel checks indicate easing competition across key segments, especially the ones in Grab is operating,”

In mobility, for example, the analysts observed higher ride-hailing fares across markets YTD — in 2QFY2022, fares are up 22%-42% y-o-y in Singapore, while promotional levels reduced meaningfully. There is also lower discounting in food delivery, especially in Indonesia since 1QFY2022.

Grab is expected to report its 2QFY2022 results mid this month. Overall, CGS-CIMB forecast Grab to report robust GMV of US$5.1 billion (6% increase q-o-q and 31.3% increase y-o-y), with its mobility segment especially benefitting from the reopening of regional economies.

Amid easing competition, the analysts believe Grab is able to scale back on its incentive levels and continue to increase monetisation. Hence, they forecast revenue of US$281 million in 2QFY2022, a 23.2% growth q-o-q and 56.1% growth y-o-y.

“With better scale and easing competition, we expect adjusted EBITDA losses to further narrow on a q-o-q basis to US$241 million in 2QFY2022, though remain higher versus 2QFY2021,” they add.

Shares in Grab closed 2 US cents lower or 0.67% down on July 29 at US$2.95.