SuperApp battles to delay profitability
- Grab’s promotions to make GoTo’s mobility business irrelevant in Singapore could hurt its own margins
- Sea Ltd is eating into Grab’s delivery business in Indonesia, which might delay segmental breakeven
- FY22F adjusted EBITDA losses may not narrow as expected earlier; Downgrade to HOLD till we see concrete signs of improving profitability, TP cut to US$5.60
Investment Thesis:
Grab’s mobility promotions might hurt its margins. Grab has been offering generous driver incentives and consumer discounts since early 2022 to make GoTo’s mobility business irrelevant in Singapore
Grab is losing delivery market share to Sea Ltd (SE) in Indonesia. SE captured 8% market share in Indonesia’s delivery business in 2021 since its launch in March 2021 and is likely to at least double its share in 2022F.
Grab to see slower revenue growth while losses may not narrow in FY22F. We project FY21F-23F adj revenue CAGR of 30% from 39% earlier and adj EBITDA loss of (US$715m)/(US$384m) vs (US$420m /US$200m) earlier profitability.
Valuation:
Downgrade to HOLD with lower TP of US$5.60, translating to 5x FY22F adj revenue. Our previous bear-case scenario has become our base-case now. We assume long-term adj group EBITDA margins of 13% in FY27F (20% earlier), leading to adj group EBITDA of US$1.1bn in FY27F (US$ 2.0bn earlier). Our TP is based on EV to EBITDA of 20x in FY27F discounted back annually at 10% to FY22F
Where we differ:
We are 10%/12% below Grab’s official adj group revenue guidance for FY22F/23F. The gap comes from lower growth in delivery & fintech business. We project adj EBITDA loss of (US$732m)/ (US$384m) in FY22F/23F vs Grab’s official guidance of (US$200m)/positive EBITDA of US$500m.
Key Risks to Our View:
Even higher losses can can lead to our bear-case TP of US$4.12 based on 3x FY22F adj revenue. 3x is the average multiple of Uber & Doordash. Shopee & GoTo raising competition too much could be the reason.