HSBC Global Research analysts Piyush Choudhary and Rishabh Dhancholia have downgraded Grab Holdings from “buy” to “hold”, while raising their target price to US$5.50 ($7.36) from US$4.25 previously.
Grab’s on-demand monthly transacting user (MTU) growth has grown 19% y-o-y in 3QFY2024 ended September, driven by the company’s investment into various products to expand its total addressable market.
High value mobility rides gross merchandise value (GMV) grew 30% y-o-y in 3Q2024 and priority deliveries rose in the delivery segment.
Grab’s subscription programme, GrabUnlimited, saw increased adoption which led to higher frequency mainly in the delivery segment but offset by cost per order and supported margin expansion.
The analysts maintain that Grab should be able to strengthen its leadership position in key categories — ride hailing and deliveries — due to its ability to continuously roll out innovative and affordable products.
To this end, the analysts expect Grab’s ebitda to increase to US$336 million in 2024 and US$902 million in 2026.
The analysts raise their adjusted ebitda forecasts by 7%-16% for 2024 to 2026 and raise GMV forecasts by 2%-5% over 2024 to 2026.
“We think stock re-rating by approximately 58% ytd already reflects improvement in fundamentals and we believe risk-reward is balanced”, the analysts note.
The analysts note three potential scenarios by flexing GMV growth assumptions and margin forecasts across segments.
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In the base case scenario, the analysts forecast mobility segment and delivery segment GMV to expand at 13% and 11% compound annual growth rate (CAGR) over 2023 to 2033, respectively. Ebitda margin is forecasted to expand in the delivery segment to 4.7% of GMV by 20233.
In the bull case scenario, the analysts assume mobility and delivery segment GMV will rise at 15% and 12% CAGR over 2023 to 2033, respectively.
“In our bull case scenario, we arrive at a fair value of US$6.10 per share,” the analysts say.
In the bear case scenario, fair value drops to US$4.53 per share.
As such, the analysts believe risk-reward is fairly balanced at current levels with 3.6% upside in our base case.
“We think street expectations have risen over the past three months and hence there is lower probability of the company beating street expectations,” the analysts note.
Shares in Grab closed at US$5.24 on Dec 4.
