Analysts maintain 'buy' on Grab following margin improvements

On the back of improved ebitda forecasts, Maybank has raised its target price to US$4 from US$3.80 previously.

Analysts at Citi Research and Maybank Securities are keeping “buy” on Grab, following the superapp’s improving margins in its 1QFY2023 ended March results.

Maybank analyst Kelvin Tan highlights that Grab’s 1QFY2023 revenue of US$525 million ($706 million) and net loss of US$250 million beat his and consensus expectations at 26% and 31% respectively. This is mainly on narrower adjusted ebitda loss and lower net interest expense.

Citi analysts Alicia Yap, Vicky Wei and Nelson Cheung describe Grab’s 1QFY2023 results as ‘solid’, especially on the improvement of ebitda loss. However, they note that Grab has retained its FY2023 revenue guidance of 54%-60% growth y-o-y, which the analysts view as conservative and prudent, given it is earlier in the year.

Grab’s Gross Merchandise Value (GMV) for the quarter stood at US$4.96 billion, 2% below the Maybank’s estimates. This is mainly on the deliveries segment weakness, which is attributable to post-Covid normalisation and seasonal factors. Tan points out that Grab is confident of sequential GMV growth from 2QFY2023, as deliveries rebounded post-Ramadhan into early May.

Its mobility segment revenue, on the other hand, grew 72% y-o-y, 3% ahead of Citi’s forecast. This is mainly due to ongoing recovery of demand post-reopening, as well as contribution from increased demand following the resumption of tourism activities in the region. The analysts highlight that Grab’s monthly active driver supply has increased 10% y-o-y.

Maybank’s Tan projects further GMV recovery in the mobility segment, aside from margin expansion in the deliveries segment.

For its financial services segment, Tan expects GXS Bank to see growth in its credit business, on top of anticipating the launches of the digital bank operations in Malaysia and Indonesia in 2H2023.

Moving forward, the analyst believes Grab’s intensified focus on profitability will slow GMV growth. Tan forecasts Grab GMV to rise by 1.05% y-o-y to US$20.52 billion in FY2023. Group net revenue is expected to rise by 54% y-o-y to US$2.21 billion, while adjusted ebitda loss is expected to narrow further to -US$101 million for the full year.

On the back of improved ebitda forecasts, Maybank has raised its target price to US$4 from US$3.80 previously.

Meanwhile, Citi analysts have updated their FY2023-FY2025 net loss estimates to US$1.02 billion, US$983 million and US$480 million respectively, or EPS of -27 US cents, -25 US cents and -12 US cents. The analysts kept their target price unchanged at US$4.80.

Shares in Grab closed 30 cents higher or 11.07% up on May 22 and US$3.06.


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