Brokers’ take: Analysts positive on Grab after losses shrink in Q1

ANALYSTS remain positive on Grab’s prospects of achieving profitability in the near term, after the New York-listed company on Thursday (May 18) posted stronger-than-expected financial results for the first quarter of 2023.

DBS Group Research maintained its “hold” call on the counter and raised its target price to US$3.07 from US$3.02.

While the revised target factors in a lower FY2027 Ebitda (earnings before interest, taxes, depreciation and amortisation), it assumes a higher net cash to a discounted enterprise value (EV) based on FY2023 estimates.

This comes on the basis of an estimated US$200 million cash burn of the company’s current net-cash position of US$5 billion, said analyst Sachin Mittal in a report on Friday.

However, he believes that Grab’s valuation, which is currently at a 12-month forward EV to gross profit ratio of 6.9 times – a 53 per cent premium to its competitor Sea – will be “difficult to sustain”.

This is because the market prefers profit-based multiples over revenue multiples, he explained.

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The analyst projects a gross merchandise value (GMV) compound annual growth rate of 15 per cent over FY2022 to FY2025.

Normalised Ebitda margins for the group’s on-demand business could come in at about 13 per cent in the long term, he cautioned. This is because the instant nature of the deliveries – say, for food and transport through private-hire cars – allows each driver or partner to serve only a single customer at a time.

Meanwhile, CGS-CIMB believes that Grab will be able to “accelerate its path to profitability” amid an easing competitive landscape.

In a note on Thursday, analyst Ong Khang Chuen said he deemed Grab’s new adjusted loss before interest, taxes, depreciation and amortisation (LBITDA) guidance of between US$195 million and US$235 million to be conservative.

While the company’s Q1 results beat CGS-CIMB’s expectations across certain lines, he noted that its GMV missed Bloomberg’s consensus expectations.

He maintained his “add” call on the counter, with an unchanged target price of US$4.50.

In a separate note, Citi analysts said that Grab is “gradually building an execution track record”, and could surprise on the upside if its Ebitda breakeven comes ahead of expectations.

The research house now expects FY2023 LBITDA to come in at a narrower US$212 million, down from US$276 million previously.

Citi continues to rate the stock at “buy”, with an unchanged price of US$4.80.