Brokers' take: Maybank initiates Grab with 'buy', expects breakeven by 2025

DESPITE Grab performing poorly on the stock market since its listing, Maybank started its coverage of Grab with a "buy" rating and a target price of US$4.32 over the next 12 months.

This offers shareholders a potential upside of over 25 per cent from the counter's last closing price of US$3.44 on Monday (Mar 28).

However, it is still much lower than its opening price of US$13.06 when it debuted on the Nasdaq - a stock exchange based in the US favoured by tech companies - on Dec 2 last year.

With its share price dropping by more than 70 per cent since then, Maybank analysts Lai Gene Lih and Samuel Tan view Grab's risk-reward as attractive in the next 24 months as it strives for profitability, they said in a report on Monday.

The analysts estimate that the ride-hailing platform will be able to break even by 2025, with earnings before interest, taxes, depreciation and amortisation to come in at about US$86 million by that year.

After accounting for taxes and minority interests, the analysts estimated that Grab's net loss would be reduced to US$2.8 million in 2025.

Maybank expects the firm's gross merchandise value (GMV) to have a compounded annual growth rate (CAGR) of 27.1 per cent to US$42 billion between 2021 and 2025.

The analysts also estimate adjusted net revenue to clock a CAGR of 31.1 per cent over the same time period, as growth in Grab's financial services and enteprise segment overtakes growth from its food delivery and mobility businesses.

"If Grab is able to markedly reduce excess partner and consumer incentives without sacrificing GMV growth, we see the possibility of Grab becoming profitable earlier than 2025," said Lai and Tan.

Their upbeat sentiment on Grab is based on the firm having market leadership across several of its business segments in South-east Asia, its ability to attract and maintain consumers and partners, and its established brand presence in the region.

"We believe another strength for Grab to attract and maintain a robust fleet of driver partners to keep customer experience strong is via its 'everyday, everything' approach," they said.

As its various services have different peak times throughout the day, Maybank believes that Grab is able to adapt and deploy resources that match consumer demand over the course of a day.

With increasing population density, traffic congestion problems and car ownership being expensive in key South-east Asian cities, Maybank said these trends would further boost the need for on-demand services for transport and food delivery.

With several countries relaxing their Covid-19 curbs, they expect to see more demand for ride-hailing and delivery services, aided by a recovery in tourism.

The analysts also noted that Grab, in its bid to become the superapp in the region, has started expanding the variety and depth of its services. This includes buying over a grocery store chain in Malaysia, and partnering with influential brands such as Dyson and Shein, as well as hotel booking platforms, like Booking.com and Agoda.

"We do not rule out that Grab may over the long run integrate such services further by providing a more robust system of mini-apps across multiple services - thereby incrementally strengthening its position as a lifestyle app," they said.

Another key growth segment for Grab is its financial services, such as mobile wallets and digital banking, and Maybank believes that the firm will likely build the superapp around this vertical. Lai and Tan believe that Grab has an advantage over current financial services incumbents in reaching the vast underbanked population in South-east Asia.

One of Grab's advantages is that they have data from the underbanked population as this segment generally would use the platform's services or contribute to it, the analysts noted.

"However, as building the digital finance business requires time and financial investments to scale and obtain returns, it is likely that the business will not be a material contributor to profitability in the near term," they said.

Even though Maybank is positive on Grab's future financials, they also pointed out key risks.

Intense competition in the delivery and ride-hailing space, as well as a possible drop in user growth if incentives to drivers and merchant partners are reduced, are some risk factors.

Others include the possibility that its financial services business fails to take off, and regulatory changes, such as requiring Grab to classify their drivers as employees and provide them pension, could add to higher business costs.

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