Tellimer’s Nirgunan Tiruchelvam has initiated coverage on Grab Holdings with a “buy” call and a US$13 target price.
In his Dec 9 report, Tiruchelvam, who heads up Tellimer's consumer sector equity research, says Grab provides unique exposure to the explosion of food delivery, ride-hailing, and mobile money.
“Covid-19 has accelerated the growth of the digital economy in Asean, and Grab has been foremost among the Asean digital giants,” says Tiruchelvam.
In his view, Grab’s “super app” status has not been fully valued by the market. Its adjusted net revenue as a percentage of GMV is 12%, while its take rate has risen threefold since 2018, better than Alibaba.
“Grab has the potential to be re-rated as an all-encompassing super app like Alibaba. It is becoming a one-stop shop for ride-hailing, food delivery, payments and other services. The current valuation does not reflect its potential as a super-app,” says Tiruchelvam.
Grab has three main segments — deliveries, mobility and financial services. Tiruchelvam expects the company’s delivery GMV to rise by a compound annual growth rate (CAGR) of 42% in FY20 to 24, assuming the ratio of GMV monetisation to be 15%.
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The mobility revenue is expected to rise by a CAGR of 32% in FY20 to FY24. Tellimer assumes the ratio of GMV monetisation to gradually increase from 18% in FY20 to 24% by FY24.
Grab’s financial services total payment volume is expected to grow at a CAGR of 43% in FY20 to FY24.
The tech company’s operating margins for FY20 were -298.3%. Tiruchelvam estimates Grab’s operating margins to improve and turn positive during the forecast period, expecting it to reach 30% by FY24.
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In his risk analysis, Tiruchelvam says Grab may face serious business risks as its business segments are still in the early stages of growth. The food delivery business, for instance, is still in its infancy. Major international players such as Meituan Dianping may enter the market and undercut Grab.
The end of the pandemic may also weaken the demand for food delivery and therefore affect the company’s growth trajectory, he adds.
“Despite the progress in vaccination, there have been renewed restrictions in some Asean countries including Singapore, Malaysia and Indonesia. This could adversely affect Grab’s business, financial condition, results of operations and prospects,” says Tiruchelvam.
There is also the risk of a vastly disproportionate voting share of its founder Anthony Tan, says Tiruchelvam. “Its founder Anthony Tan Tan holds 3.7% of the shares in the company by virtue of his 183 million Class B Shares. This includes 28 million shares from co-founder Tan Hooi Ling and 18 million shares from Grab president Ming Ma – these shares are beneficially owned by Tan.
“Each Class B share equals 45 votes, while each Class A share is equal to one vote. Accordingly, Tan controls more than 60% of the voting shares after the merger with Altimeter. This disproportionate voting share for the founder is familiar to many tech companies, including Facebook and Alphabet.”
Besides Tiruchelvam, JP Morgan’s Ranjan Sharma has also initiated coverage on the stock with an "overweight" call and US$12.50 target price.
JP Morgan is one of the banks that helped arrange Grab's listing.
Grab closed 81 cents lower or 9.11% down at US$8.08 on Dec 9.
