Brokers’ take: CGS-CIMB raises Grab target to US$4.10 as sentiment on business model improves

CGS-CIMB has raised its target price on Singapore-based Grab to US$4.10 from US$3.60, following a strong read-through of the group’s Q2 results, along with its competitor Uber.  The results enhanced the research house’s perception on the economic viability of on-demand services’ business models, it said in a report on Thursday (Aug 25).  Its new target price implies a potential upside of 29.3 per cent from the counter’s after-hours closing price of US$3.17 on Thursday. Grab’s shares were up 0.3 per cent, or US$0.01 at the time.  Grab on Thursday reported net loss for the second quarter ended June narrowed to US$547 million. Revenue surged to an all-time high of US$321 million, on the back of a 30 per cent growth in gross merchandise value driven by a recovery in its mobility business and continued growth in on-demand delivery. 

Grab’s revenue performance beat CGS-CIMB and consensus estimates, and was in line with DBS Group Research’s expectations. CGS-CIMB maintained its “add” call on the stock; DBS maintained its “hold” call and target price of S$2.85, implying a potential downside of 10.1 per cent.  Meanwhile, Uber on Aug 2 reported a positive quarterly cash flow for the first time. Q2 revenue, which more than doubled to US$8.1 billion, had also beat analysts’ estimates CGS-CIMB believes that the easing competitive landscape will enable Grab to “accelerate its path to profitability”. The group also expects its core food and deliveries segment to break even 1 to 2 quarters ahead of its previous guidance.   The group is looking to do so via product innovation to drive cost efficiency and to grow the order frequency of “quality” users, while de-emphasising users who are sensitive to incentives.