Brokers’ take: Citi raises Grab’s target price after solid Q2 results
Yong Hui Ting &
Zhao Yifan
CITI Research increased its target price on Grab to US$5.20 from US$4.80, after the company reported a narrowed net loss of US$135 million for the second quarter ended Jun 30.
In its report on Wednesday (Aug 23), Citi maintained its “buy” call on the Nasdaq-listed company, stating that it “remains positive on Grab’s sustainable improving growth prospect”.
Despite Grab’s management conservatively maintaining its revenue guidance for FY2023, while noting that revenue for the financial year can increase as much as 60 per cent year on year, Citi increased the group’s FY2023 revenue estimation by 3.4 per cent, to US$2.29 billion from US$2.22 billion, to reflect the improvements in Q2 results.
Earnings before interest, taxes, depreciation and amortisation (Ebitda) estimation for FY2023 were substantially revised to a loss of US$38 million, from a loss of US$212 million.
Net loss estimations for FY2023 and FY2024 were updated to US$513 million and US$248 million respectively, while forecast loss per share was revised to US$0.13 for FY2023 and US$0.06 for FY2024.
The research house was further encouraged by the company bringing forward its estimated Ebitda breakeven timing to Q3 2023, from Q4 2024.
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Beyond strong Q2 results, its confidence in Grab’s recovery was reinforced by the group’s commitment to drive demand through increasing affordability.
Grab’s mobility segment is on track to return to pre-Covid level with the recovery of airport rides and domestic demand. In particular, the improvements in driver supply and productivity, along with increased user affordability through product innovation and the relaunch of GrabShare, have pushed domestic demand in markets such as Malaysia, Singapore and Thailand, to reach or surpass pre-Covid levels.
“We believe that Grab’s effort in improving user affordability and rewarding higher income to driver and merchant-partners will prove effective in growing user demand, order frequency and mitigating driver supply issues,” said Citi’s analysts.
HSBC’s analysts were similarly positive on the group, calling it a “buy” given that it was “well positioned to accelerate its path to profitability with growth in the mobility segment, margin expansion across segments and employee cost savings post the restructuring (done during the end of June)”.
“We continue to think Grab should be able to strengthen its leadership position in its key categories (ride hailing and food delivery) due to ecosystem synergies and its ability to continuously roll out innovative and affordable products,” said the analysts.
“The company is well capitalised, and has the potential for multi-year growth as user penetration is low in its key segments.”
The research team maintained its forecasts on Grab with an unchanged target price of US$4.25.
DBS Group Research, in contrast, expressed reservations about Grab’s growth prospects.
While agreeing that the group’s Q2 results were above consensus estimates due to sharp improvement in all segments, DBS analysts did not see much room for increases in margin in the long term.
The mobility segment is currently operating at a margin of 12.4 per cent, slightly higher than its steady-state margin of 12 per cent as guided by the group’s management, while the delivery segment is operating at 2.7 per cent, slightly below its 3 per cent steady-state margin.
In an update on Wednesday, DBS maintained its “fully valued” call, with the same target price of US$3.16 as issued on Jul 23.
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