- Uber Technologies (UBER) enjoys two key structural advantages over Grab Holdings (GRAB)
- The Chinese on-demand industry is highly competitive, but food delivery is seeing a step-down in competition from Douyin.
- Prefer UBER and Meituan in on-demand space, downgrade GRAB to Fully Valued. Amazon & Sea Ltd are our e-commerce top picks as highlighted in our sector report published on 3 Jul 2023
UBER enjoys two key structural advantages over GRAB. Firstly, the car ownership rate in the US is high at over 90% vs less than 15% in Southeast (SE) Asia as cars are quite expensive compared to the average income levels. So, drivers in SE Asia incur an additional cost of renting the car. For example, most drivers in Singapore, pay a car rental fee of S$70-100 per day, almost 30-50% of their daily earnings. Secondly, in the food delivery business in the US, it is customary to tip UBER driver 15-20% of the order value, on top of the delivery fee, but tip-culture is largely absent in SE Asia. These factors might not allow GRAB to significantly reduce the incentives offered to its drivers. We lower our normalised EBITDA margin assumption for GRAB to 12% in FY27F (13% earlier) and downgrade our call to Fully Valued.
In China, on-demand business is highly competitive but food delivery is seeing a step-down in competition. According to media reports, Douyin has abandoned its RMB100bn GMV target for Food Delivery in 2023 after achieving just 10% of the target in 1H of 2023. This is mainly due to lack of its logistics infrastructure. Food delivery comprised 53% of Meituan’s revenue in 2022. Meituan is seeing most of the competition from Douyin in local life services segment, which only comprises mid-teens of Meituan ’s revenue.
Prefer UBER and Meituan for high growth available at a reasonable price (GARP). UBER is trading at 15.3x 24-month forward EV/adj EBITDA below its 2-year average of 19.3x while offering 39% adj EBITDA CAGR over FY23F-26F led by margin expansion across Mobility and Delivery. GRAB is trading at a big premium to UBER at 27x 24-month EV/EBITDA. Even in terms of 12-month/24-month forward EV/Gross Profit, GRAB is not cheap at 8.0x/5.9x vs UBER at 5.4x/5.0. With lesser concerns from Douyin in the Food Delivery segment, Meituan is also attractive at 15.6x 24-month EV/EBITDA while offering 40% adj EBITDA CAGR.