2022-03-07
(35 Pages, 37 graphs and tables)
Listen to analyst’s audio summary
l Subway construction in Southeast Asia (SE Asia) cities have kicked into high gear. GRAB’s reliance on two/three wheelers might expose it to further substitution risk. This puts food delivery as a must-win category for GRAB;
l SEA has made significant inroads in food delivery through Shopee Food. Its leverage on global e-commerce through mobile payment supplies it with a war chest that might pressure GRAB persistently down the road, in our view;
l We initiate GRAB at SELL with TP of US$3.0.
GRAB has spent a lot to get where it stands today
Partially due to Uber’s exit strategy in SE Asia, GRAB has raised 34 rounds venture funding of US$12bn prior to its SPAC, culminating to US$480 of venture funding spent per Monthly Transaction User (MTU) while its revenue per MTU was only US$29. The selling shareholder’s list is long.
Where exactly does GRAB stand today?
GRAB’s use base is 7% of Meituan and 15% of Didi, ~40% of SEA’s e-commerce and ~6% of SEA’s game users. GRAB’s usage frequency is very high, pointing to a group of power users contributing most of the usage. About 2/3 of GRAB’s shared mobility orders take place on two/three wheelers and another 15% on taxis, both of which have weak foundation to support a profitable business. Public transport and tightening regulation are potential risks.
What we really worry about?
While SE Asia has favorable demographics and cheap gasoline, its consumption power is low and has historically been improving slower than China, with poverty reduction speed of the three most populous countries lagging behind. Without profit generating business segments like Meituan’s in-store and SE’s Garena, GRAB’s weak foundation opens itself for competitive attacks. GRAB’s super app strategy at the presence time isn’t very meaningful given the low user base.
Valuation is not cheap
Trading at 12x 2022 PS, GRAB is more expensive than its regional and global peers. We expect GRAB to achieve non-GAAP operating breakeven in 2028.