CGS-CIMB Research analysts Ong Khang Chuen and Kenneth Tan have kept “add” on Grab with an unchanged target price of US$4.50 ($5.96), anticipating the “superapp” to announce a generally positive set of 1QFY2023 ended March results on May 18.
In their May 8 report, the analysts forecast a slight moderation in Grab’s gross merchandise value (GMV) to US$4.91 billion, 2% higher y-o-y, with its mobility growth offsetting declines in deliveries and financial services.
With easing competition, the analysts believe that Grab would be able to further scale back on its incentive levels and increase monetisation. They estimate a beat in net revenue and adjusted ebitda at US$527 million and -US$87 million respectively, versus Bloomberg consensus’ US$490 million and -US$124 million.
GAAP net loss, however, is estimated to be in line with Bloomberg consensus at US$282 million due to mark-to-market fair value loss of US$60 million on its equity interest in Indonesia’s Emtek.
Meanwhile, Ong and Tan’s read-through from Grab’s regional peers — namely GoTo and Foodpanda — suggests a slight weakness in delivery GMV despite significant improvements in margins.
They forecast Grab to report deliveries GMV of US$2.31 billion for its 1QFY2023, 10% lower y-o-y on post Covid-19 normalisation and the earlier Ramadan. The rationalisation of incentives, however, should help Grab’s deliveries segment to achieve an adjusted ebitda to GMV ratio of 2.6% in 1QFY2023, a 4.8 percentage points improvement y-o-y.
“We see upside to Grab’s steady-state margin guidance for its deliveries segment as it rapidly approaches its near-term target of 3% adjusted ebitda to GMV ratio, as we note most global peers generally target more than 5% over the longer-term,” the analysts add.
With tailwinds from the economic reopening and tourism recovery, CGS-CIMB forecasts Grab’s mobility segment ebitda to improve 88% y-o-y to US$154 million in 1QFY2023. The analysts note that they observe lower frequency of surge pricing in Singapore, likely driven by continued efforts to improve driver supply.
Grab is currently enhancing its capabilities to better tap the tourism recovery and reinvesting gains to drive growth in lower-tier cities, the analysts highlight. With this, they forecast its mobility segment to see 30% GMV growth y-o-y in FY2023 while maintaining an adjusted ebitda to GMV ratio of 12.8%, slightly above its steady-state margin guidance of 12%.
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With key competitors aiming to achieve similar goals this year, Ong and Tan expect continued healthy competitive landscape, enabling Grab to drive rapid margin expansion without market share erosion.
CGS-CIMB’s current base case assumes Grab can achieve adjusted ebitda breakeven by 4QFY2023 — in line with the company guidance. However, the analysts believe Grab’s FY2023 adjusted ebitda loss guidance of US$275 million-US$325 million is too pessimistic.
With an estimated FY2023 adjusted ebitda loss of US$192 million, CGS-CIMB sees room for Grab to lower its adjusted ebitda loss guidance range if it successfully executes continued margin improvements in 1QFY2023.
Shares in Grab closed 32 cents higher or 10.6% up on May 8 at US$3.34.
