Analysts unanimous on Grab’s improved prospects after 2QFY2023 outperformance

Analysts from Citi, Maybank, HSBC and CGS-CIMB have each maintained their “buy” and “add” calls.

Analysts across the board are positive on Grab Holdings after the NASDAQ-listed company beat expectations for its 2QFY2023 ended June 30 and raised its full-year ebitda guidance. Citi Research, Maybank Research, HSBC Global Research and CGS-CIMB Research have each maintained their “buy” and “add” calls on Grab.

Citi analysts Alicia Yap, Nelson Cheung and Vicky Wei have raised their target prices to US$5.20 ($7.06) from US$4.80 previously, while Maybank’s Kelvin Tan has lifted his target price to $4.20 from $4.00 previously. Piyush Choudhary and Rishabh Dhancholia of HSBC and Ong Khang Chuen and Kenneth Tan of CGS-CIMB have held firm on their respective target prices of US$4.25 and US$4.50.

In their report dated Aug 24, the Citi analysts say that along with a “clean, solid 2QFY2023 beat”, and despite Grab’s management conservatively maintaining its FY2023 revenue guidance to the high-end of its 54% to 60% y-o-y improvement range, they are positive on the company’s substantial revision of its FY2023 group ebitda forecast to a loss of US$30 to US$40 million from a loss of US$195 million to US$235 million previously

They add that Grab’s expected ebitda breakeven has been brought forward to 3QFY2023.

“More importantly, we believe that Grab’s effort in improving user affordability and rewarding higher income to driver- and merchant-partners will prove effective in growing user demand, order frequency and mitigating driver supply issues,” say the analysts.

Moving into 2HFY2023, the analysts note that the company’s management is confident that it expects continued sequential growth of the delivery and mobility business in the second half of the financial year, balancing steady ebitda margin targets and incentives. Grab has reiterated its belief that the mobility business will return to pre-Covid levels existing 2023 and “sounds optimistic” on the upside from ad and fintech revenues, according to them.

Remaining positive on Grab’s “sustainable, improving growth prospects”, the Citi team has revised its FY2023 ebitda to a loss of $38 million from a loss of $212 million previously, and has adjusted its target price to US$5.20.

Similarly, Maybank’s analysts have lifted their FY2023 to FY2025 ebitda forecasts after factoring in cost savings from Grab’s recent layoff exercise and management guidance on a better adjusted ebitda level for FY2023.

They see easing competition with Grab’s dominance of SEA’s ride hailing market given its logistical edge over rivals, helping it gain share as social restrictions ease further. Meanwhile, the company’s market leadership in online food delivery and continued push to improve unit economics should narrow the company’s ebitda losses to achieve break even in FY2024, slightly later than in 3QFY2023 as the company says it expects.

As such, the Maybank team has increased their target price to US$4.20.

And while the HSBC analysts have not made any changes to their forecasts, they continue to believe Grab should be able to strengthen its leadership position in its key businesses of ride hailing and food delivery due to ecosystem synergies and its ability to continuously roll out innovative and affordable products. “The company is well capitalised and has the potential for multi-year growth as user penetration is low in its key segments,” they say.

The HSBC team says Grab is well-positioned to accelerate its path to profitability with growth
in the mobility segment, margin expansion across segments and employee cost savings after its June restructuring.

They expect Grab to turn ebitda positive in 3QFY2023 and free cash flow positive in FY2024, driven by growth in the mobility and delivery segments, lower losses in financial services as it focuses on ecosystem synergies, employee cost savings and operating leverage benefits. The analysts have kept their “buy” rating with an unchanged target price of US$4.25.

Finally, Grab’s “solid outperformance” in 2QFY2023 has seen CGS-CIMB analysts lift their  FY2023 to FY2025 ebitda forecasts and narrow their net loss assumptions after raising their margin assumptions post the strong showing in 2QFY2023.

They now expect Grab to achieve generally accepted accounting principles (GAAP) profitability by 1HFY2025 and non-GAAP profitability by 1QFY2024, and have kept their target price of US4.50.

The CGS-CIMB team’s potential re-rating catalysts include stronger mobility gross merchandise value (GMV) on the back of a stronger tourism recovery in Southeast Asia and losses narrowing at a faster pace. Conversely, they see downside risks including macro headwinds dampening the demand for Grab’s services and hurting GMV growth, regulatory changes related to protection for gig workers or a further rise in policy rate expectations affecting its valuations.

Shares in Grab closed 4 US cents or 1.08% down at US$3.66 on the NASDAQ on Aug 24.

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