4Q23 in line with consensus; FY24F guidance disappoints the market
- 4Q23 group adj EBITDA of US$35m was in line with consensus’ US$35m-40m. Adj EBITDA improved sequentially across all segments except fintech which declined due to Digital bank launch in Malaysia
- FY24F group adj EBITDA guidance of US$180m-US$200m, is ~21% below consensus at the mid-point; we see room for guidance to be raised like last year, led by reduction in fintech losses
- Too conservative guidance led to a sharp correction in the stock price. BUY GRAB with an unchanged TP of US$4.08. GRAB is trading at 15x EV to FY24F adj EBITDA (ex fintech losses), at a 42% discount to UBER’s 26x.
4Q23 group adj EBITDA stood at US$35m, broadly inline with consensus’ projected range of US$35m-US$40m. Grab Holdings (GRAB) recorded group adjusted (adj) EBITDA of US$35m, broadly inline with consensus’ range of US$35m-US$40m. Group adj EBITDA rose by US$6m q-o-q, driven by q-o-q growth in all segments except fintech. Deliveries segment adj EBITDA as a % of GMV stood at 3.6% (vs 3.4% in 3Q23) as higher take rate more than offset rising incentives as a % of GMV. The q-o-q improvement in adj EBITDA as a % of GMV is also attributable to increasing adoption of Savers (lower delivery charge + longer delivery time) which accounted for ~23% of Deliveries transactions. Mobility segment adj EBITDA as a % of GMV was 12.3%, inline with the steady state target of 12-13%. Mobility segment adj EBITDA was US$182m (+1.1% q-o-q) in 4Q23. Fintech adj EBITDA losses widened by US$13m to US$81m, due to the launch of digibank in Malaysia while costs in GrabFin remained stable despite the increased Cost of Funds expenses associated with the growth in On-Demand transactions. GRAB also guided that fintech losses had peaked in 4Q23 due to marketing expenses for digibank in Malaysia. However, it is important to note that the fintech segment’s performance should be measured by the growth in its revenue (+12% q-o-q to US$56m) as fintech is expected to generate losses due to continued investments in GrabFin and DigiBank
FY24F group adj EBITDA guidance of US$180m-US$200m is ~21% below consensus at the mid-point with 1Q24F likely to be as seasonally slow quarter. GRAB has guided for its FY24F revenue to grow by 14%-17% y-o-y, where the mid-point is 4% below consensus. GRAB expects its adj EBITDA to lie within the range of US$180m-US$200m, ~21% below consensus expectation of US$242m. We think that GRAB Is likely to update its guidance as the year progresses like the last year where it had surprises with an earlier than expected adj group EBITDA breakeven in 3Q23. With potential reduction in fintech losses to an estimated US$60m each quarter on average in FY24F (vs US$81m in 4Q23), GRAB’s quarterly adj EBITDA run rate would stand at about US$55m even if there is no growth in mobility, delivery and advertising. Maintain BUY with an unchanged TP of US$4.08. GRAB is trading at 17.5x EV to FY24F adj EBITDA (ex fintech losses) based on our FY24F adj EBITDA (ex fintech lossess) of US$477m. Valuations look attractive, trading at a 33% discount to UBER’s 26.1x which does not have a fintech business. Our TP is based on 21.0x EV-to-FY24F adj. EBITDA of US$477m (ex fintech losses). We value the fintech business at 3.5x FY25F gross revenue, in line with peers. GRAB offers an EBITDA CAGR of 54% (ex fintech losses) over FY23-25F compared to UBER’s 44% CAGR.
Other highlights:
GRAB’s 4Q23 GMV of US$5,441m (+1.9% q-o-q) and revenue of US$653 (+6.2% q-o-q) met consensus expectations. Deliveries segment GMV rose by 1.5% q-o-q to US$2,648m while Deliveries revenue improved by 4.9% q-o-q to US$321m on higher take rate more than offsetting rising incentives. Mobility GMV was US$1,474m (+4.8% q-o-q) and revenue stood at US$237m (+2.6% q-o-q). Fintech services revenue was US$56m (+12% q-o-q) on improved payment monetization, higher contributions from lending, and lowered incentive spend. Total loans disbursed by GRAB as of FY23 stood at US$1,497m (+57% y-o-y) while total loans outstanding was US$326m. GRAB’s Enterprise and New Initiatives segment recorded revenue of US$39m (+39% q-o-q), supported by the growing advertising business.
Group adj EBITDA stood at US$35m in 4Q23, rising by US$6m sequentially despite US$13m rise in fintech losses
Source: Company, DBS Bank
GRAB’s GMV to Monthly Transacting Users (MTU) stood at US$144.3 (-2.7% q-o-q) on higher user base
Source: Company, DBS Bank