Brokers’ take: Maybank upgrades Grab to ‘hold’ on stronger profitability prospects

MAYBANK Securities has upgraded its call on Grab to “hold” from “sell” after the South-east Asian on-delivery player exceeded expectations with its latest set of third quarter financials.

The higher price target of US$3.40 compared to US$2.83 previously reflects raised enterprise-value-per-share valuation multiples for the group’s mobility and delivery segments, where Maybank sees stronger profitability prospects.

In a report on Thursday (Nov 17), Maybank analyst Kelvin Tan said Grab appears “fairly valued” at the revised target price.

Tan is especially positive on the group’s mobility segment, where he observed robust demand and recovering driver supply following the easing of Covid-19 restrictions. Even with Grab’s Q3 monthly average active driver-partners at 80 per cent of pre-Covid levels, he believes there is still room for the group to capture demand recovery.

Within the deliveries segment, he notes that adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) turned positive for the first time, and three quarters earlier than guided – primarily due to optimisation of incentive spend.

He however remains cautious on deliveries on the possibility of slowdown, as food delivery demand is expected to normalise post-Covid.

“We are cautiously optimistic about Grab’s prospects amid the current inflationary environment, coupled with tight driver supply and potential recession, as Grab’s cash position remains strong and puts it in a good position to weather these headwinds,” said Tan.

The analyst thinks Grab will not turn to the market for further capital before it expectedly turns free-cash-flow positive in FY2024. He forecasts a 2021 to 2025 gross merchandise value (GMV) compound annual growth rate (CAGR) of 22 per cent to US$35.7 billion, as well as an adjusted net revenue CAGR of 22.8 per cent to US$5.2 billion. Adjusted Ebitda is projected to break even in FY2025.

Like Maybank, Jefferies is of the view that Grab is “on the path to profitability” after its positive Q3 results surprise.

SEE ALSO

Recession risk raises urgency to grant gig workers CPF, full benefits

Representation from the ranks is what platform workers want

Grab expects breakeven for adjusted Ebitda in H2 2024, digibank operations in 2026

Grab sees no big layoffs despite weak market

More

The research house has a “buy” rating on the stock with a base case price target of US$6, and also said it sees room for further improvement in the mobility segment with the expected return of Chinese tourists.

For FY2021 to FY2023, Jefferies is expecting GMV to expand at a 16 per cent CAGR, with its Ebitda loss margin narrowing from about -5 per cent to -2.5 per cent as a percentage of GMV.

“In our view, one of Grab’s key success factors is its hyperlocal execution strategy, which hinges on local experience to better serve the countries in which it operates,” said its research team in a separate report on Thursday.