Brokers’ take: DBS prefers Sea compared to Grab amid market share competition

INTERNET company Sea has greater profit visibility from its growing e-commerce and fintech businesses, compared to its peer Grab, DBS Group Research said.

In a report dated Jun 9 (Thursday), DBS analyst Sachin Mittal was bullish on the Singapore-based consumer Internet company’s growth potential, and expects its Ebitda (earnings before interest, taxes, depreciation and amortisation) to turn positive in 2024. He has a “buy” call and revised the target price to US$126 from US$115 on the stock.

Meanwhile, Mittal maintained his “hold” call on competitor Grab with a target price of US$2.85 as he predicts Grab’s adjusted Ebitda to turn at the earliest by FY2025. 

In addition, Mittal estimates a “conservative” Ebitda margin of 17 per cent on Sea leading to an Ebitda of US$8.6 billion in FY2027, and a 12 per cent Ebita margin leading to a FY2027 Ebitda of US$1.1 billion for Grab.  

The analyst said that Sea has a “clearer path to profitability” noting firm guidance for its e-commerce and fintech business achieving a breakeven in Ebitda by FY2025. 

He also predicts group Ebitda losses to narrow “sharply” by 27 per cent by FY2023, with the expectation of stable gaming cash flows from FY2022 to FY2024 due to the recovery of the e-commerce market to pre-Covid levels. 

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The analyst also attributed the notable improvement in e-commerce Ebitda margins to potentially lower incentives offered to consumers and merchants by Sea’s e-commerce platform, Shopee. 

Meanwhile, Mittal lowered his estimates for Grab’s adjusted Ebitda loss from US$1 billion for FY2022 to US$706 million for FY2023 following significant improvements in Grab’s mobility and delivery business. 

The analyst added that Grab’s mobility segment was poised to benefit from lower competition in Singapore along with rising demand for mobility across the region as food delivery competition becomes more “rational”.

Noting that Grab’s fintech services will partially offset reduction in losses from its mobility and delivery segment in 2023, Mittal said “financial services will continue to burn cash as Grab continues to promote its lending product and faces intense competition from  GoTo and Sea in Indonesia and Malaysia”.

Shares of Grab, which trades on the Nasdaq, closed down US$0.17 or 5.6 per cent at US$2.89 on Thursday (Jun 9), while Sea ended US$6.65 or 7.5 per cent lower at US$82.18 on the New York Stock Exchange. 

*Amendment note: This article has been amended to correct an earlier misstatement of Grab’s mobility unit as GoJek.