Analyst Hussaini Saifee of Maybank Securities is downgrading his call on Grab Holdings from “buy” to “hold” at a trimmed target price of US$4.00 ($5.41) from US$4.50 previously, amid “mild growth” headwinds and monetisation pausing.
Saifee attributes his downgrade to the already high take rates against Grab’s global peers. The rising cost and inflation pressures weighing on consumers’ discretionary spending and the non-competitive take home earnings of Grab’s drivers and partners is also another factor.
In his June 18 report, the analyst notes that the company’s out-for-delivery (OFD) take rates of 22% were “already on the higher side” of more evolved markets such as those in the US and China, while its ride-hailing services were in-line.
On this, the analyst writes: “This suggests a potential capping of the rates.”
He continues: “More importantly, we find Grab services could face pricing/commission pressure both from the consumers as well as driver-merchant partners.”
Based on a survey conduced by the brokerage, 65% of Grab’s consumers intend to lower their usage of in response to price increases, while channel checks on driver-partner unit economic analysis have pointed to “relative” driver earnings pressure, which exerts supply side pressure.
Meanwhile, Saifee sees a “slight risk” of increased competitive intensity from the “better capitalised” Gojek in Indonesia.
“Our survey results reflect a 20% to 30% higher preference for Gojek over Grab versus [a] flat-12% higher market share of Grab over Gojek,” he notes.
The entry of the electronic vehicle (EV) ride-hailing service platform, XanhSM, into Vietnam and Indonesia could also “prompt competitive reactions from the incumbent operators”, with Saifee’s survey check suggesting consumer preference for XanhSM is “already ahead” in Vietnam, relative to the new player’s market share.
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Saifee writes: “Grab’s FY2024 revenue growth guidance of 14% to 17% is conservative and we see room for upward revision. Underpenetrated Asean markets coupled with Grab’s material competitive moats leave room for sustained high growth despite competitive skirmishes.”
The analyst adds that on the valuation front, Grab is in line with its global peers, offering a similar growth compound annual growth rate (CAGR).
Upside factors noted by him include softer-than-expected competition from the entry of XanhSM in Vietnam and Indonesia, a better macroeconomy allowing for higher discretionary spending, limited driver-supply pressure leading to a continuous reduction in incentives, better-than-expected ecosystem benefits within the financial services segment, and lastly, an easing to monetary policy by the US Federal Reserve.
Conversely, downside risks include fierce competition from XanhSM in Vietnam and Indonesia, increased incentives for drivers from a tightening supply, a drop in on-demand usage frequency owing to price increases and higher inflation, and an elevated stake divestment by Softbank Group leading to excess stock liquidity.
Further to his report, Saifee notes that his “hold” call goes against the Street’s “buy”, “outperform” and “overweight” calls. Only Autonomous Research has an “underperform” call while KGI Securities has a “neutral” call on the counter.
Shares in Grab closed 1 US cent lower or 0.28% down at US$3.59 on June 17.
