BROKERS’ DIGEST
Grab’s risk reward deemed ‘attractive’ 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 March 28 report comes after the Nasdaq-listed counter saw its shares fall some 70% since its special purpose acquisition company (spac) merger in December last year. Grab’s risk reward is deemed “attractive” in the next 24 months as it strives for profitability he adds.
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%. Lai sees Grab as a beneficiary of the economic digitisation and rising affluence in Southeast Asia and that its superapp model drives strong retention among its users. He also says that 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,” writes Lai.
Grab has given a total of US$80 in incentives per monthly transacting user in 2019; US$74 in 2021 and is expected to give US$65 in 2025. Its strong hyperlocal access across Southeast Asia, which allows it to scale its user base, is another upside. “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. Lai expects the region’s economic reopening to drive the recovery of Grab’s mobility segment.
He continues: “Despite loosening restrictions, Grab observes deliveries becoming integral to daily life (average order value +41%/ transactions per monthly transaction user or MTU +28% versus pre-Covid-19).” Lai has also projected a mobility gross merchandise value (GMV) CAGR of 27% for the FY2021 ended December 2021 to FY2025, and has an estimated normalised deliveries GMV CAGR of 28% for the same period. Normalised deliveries in FY2021 saw a 56% y-o-y increase, he adds.
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.” Furthermore, a resurgence of Covid-19 related lockdowns is a risk for mobility. Finally, co-founder 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. He 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.” —