Higher than expected EBITDA losses, negatives in the price though
- Total adjusted EBITDA loss of US$287m was higher than our US$200m loss estimate due to higher delivey losses, lower mobility adj EBITDA and higher regional corporate costs.
- Raise FY22F/23F adjusted EBITDA losses by 37%/84% on high promotions in mobility and regional corporate costs.
- Maintain HOLD with a lower TP of S$2.93 as we use a lower multiple of 2.8x 12-month forward EV to revenue in line with global peers
Investment Thesis:
Grab’s mobility promotions may hurt 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’s adjusted EBITDA losses to continue for atleast another 2-years. We project FY21-23F revenue CAGR of 81% and adj EBITDA loss of US$1,000m/US$706m in FY22F/23F compared to our estimate of US$732m /US$384m loss earlier.
Valuation:
Maintain HOLD with a lower TP of US$2.93. We have revised our valuation metrics to 2.8x 12-month forward Enterprise Value (EV) to Revenue, in line with global peers. As a result, we cut our TP from US$5.60 to US$2.93, reiterating HOLD on the stock. Previously, we had used 5x FY22F adjusted revenue.
Where we differ:
We are at the higher end of Grab’s FY22F revenue guidance. We think that Grab can achieve its revenue target owing to rising commission rate, however we project delay in achieving EBITDA breakeven for delivery segment (FY24F compared to Grab’s guidance of FY23F) due to intense competition with Shopee.
Key Risks to Our View:
Higher incentives in delivery and mobility might lead to a bear-case TP of US$1.98. As Shopee makes inroads in the food delivery business while Gojek seeks market expansion outside Indonesia, this might lead to Grab offering more incentives to its delivery and mobility partners to retain its market share.