Analysts at Maybank Securities have upgraded Grab to “buy” while those at DBS Group Research and CGS International are keeping their “buy” and “add” calls following Grab’s 3QFY2024 ended September earnings beat.
This follows a relatively muted 2QFY2024, as Grab makes a solid comeback with an across-the-board improvement, exceeding consensus expectations.
To this end, the Maybank, DBS and CGSI analysts have all raised their target prices to US$5.40 ($7.23), US$5.16 and US$4.90 respectively.
For FY2024, Grab has raised its group adjusted ebitda guidance to between US$308 million to US$313 million, 12% higher than the consensus estimates of US$278 million, DBS’s Sachin Mittal points out.
Its FY2024 revenue growth guidance of 17%-18% comes in the range of US$2.76 billion to US$2.78 billion, with the lower end of the guidance being in line with consensus expectations.
CGSI’s Ong Khang Chuen notes that Grab’s annual transacting user base is three times larger than its monthly user base, indicating significant gross merchandise value (GMV) growth potential.
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“Grab is also actively driving new product launches, including grocery delivery, dine-in vouchers and credit offerings ,which facilitate cross-selling — for example, users who engage with both food and grocery delivery services exhibit five times higher order frequency compared to those who only use food delivery,” he adds.
There are also other supporting factors — tourist arrivals remain strong, with Singapore and Thailand tourist arrivals in October increasing by 17% and 21% y-o-y respectively. The flywheel effect in its delivery’s arm should increase with the restaurant reservation services, which in turn should also allow it to grow higher margin advertising revenue, Maybank’s Hussaini Saifee says.
Additionally, Gojek’s exit from Vietnam as well as relatively muted Foodpanda and Tiktok reflect a rational competitive environment, which in turn should allow for incentive optimisation.
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Hussaini further highlights Grab’s rollout of lending products through its digital banking arms in Malaysia and Indonesia in 4QFY2024, while the majority of sales and marketing was done in 3QFY2024. “This sets its fintech arm up for revenue acceleration in 4QFY2024 and FY2025 while costs should come down. US dollar strengthening versus Asean currencies weighed on 9MFY2024 results, but we expect this to normalise in 4QFY2024,” he adds.
Although Grab sees a long runway for growth as only about 5% of the Asean population is using its services, Maybank sees most of those initiatives to be organic in nature covered under the current operating expenditure and capital expenditure spending.
“While Grab is keeping an eye on inorganic opportunities we think they will be small in nature as Grab has walked away from large acquisitions such as Foodpanda. Under this backdrop, we see Grab is in a comfortable position to start returning cash. Assuming it returns free cash flow starting 2025, we estimate forward dividend yield of 2%-3%,” says Hussaini.
DBS has raised the net cash balance estimate for Grab to US$5.7 billion from US$5.1 billion previously, as per the company’s 3QFY2024’s cash liquidity position. Compared to global peer Uber 30%, Mittal notes that Grab exhibits a 63% adjusted ebitda CAGR over FY2024-FY2026.
Shares in Grab closed 51 US cents higher or 11.64% up on November 12.
