Grab Holdings: Delivery and mobility market share gains
- GRAB is gaining market share in (i) Mobility from Gojek in Singapore & Indonesia (ii) Deliveries from Foodpanda who might even exit few markets in due course
- Our revised FY24F/25F adj EBITDA is 8%/5% above consensus mainly due to Deliveries & ad-revenue; not factoring any potential acquisition
- Upgrade to BUY with a revised TP of US$4.29 as we see opportunity in its recent share price pull back
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Gojek’s mobility fares do not seem to be cheaper than GRAB in Singapore; GRAB’s focus on affordability and customisation. According to the below images, the fares from Gojek (IMAGE 1) are 20-30% higher than GRAB’s (IMAGE 2) which tends to vary depending on the time. However, this should not be the case at any time of the day given the dominance of GRAB in Singapore with a much bigger fleet of cars. We have also experienced that GRAB’s fares are much lower than Gojek on the airport route.
Gojek does not have additional features such as shared taxi option which is found in GRAB such as GrabShare. Furthermore, GRAB boasts numerous additional features such as kid-friendly, cyclist, pet friendly etc, not provided by Gojek (IMAGE 3).
Foodpanda could exit markets where it is not a top player. The company's parent company, Delivery Hero, has said that it is seeking to accelerate a plan to reach profitability by 2023, and that it may exit markets where it is not the number one player. Foodpanda is currently the third-largest food delivery company in Thailand, behind GRAB and Line Man Wongnai with a collective market share of 75%. Foodpanda’s market share in Thailand dropped to 16% in 2022 from 22% in 2021 in terms of GMV. Foodpanda had exited Vietnam in December 2015, after over three years of operation in the country. The company cited financial difficulties and a small and longer-term opportunity in Vietnam compared to other markets as reasons for its exit.
Foodpanda’s focus on margins is enabling GRAB to gain delivery market share. Delivery Hero’s Foodpanda (the Asian arm) recorded a GMV of US$3.1bn in 2022 in Southeast Asia, declining 8% y-o-y, according to Momentum Works. Foodpanda in Southeast Asia witnessed its market share declining from 22% in 2021 to 19% in 2022. Southeast Asia accounted for 11% of Foodpanda’s GMV of EUR26.9bn (US$28.8bn) as of 2022.
Foodpanda achieved an adj EBITDA breakeven in the Asian region in 2H22, and its FY22 adj EBITDA as a % of GMV stood at 0.2%. In 1H23, Foodpanda recorded EUR174m (US$185m) in adj EBITDA in Asia, translating to an adj EBITDA as a % of GMV of 1.4%. However, its 1H23 GMV in Asia fell by 5.9% y-o-y to EUR12.6bn (US$13.5bn). Delivery Hero reiterated guidance for FY2023 with adjusted EBITDA as a percentage of GMV at more than 0.5% and over 1% of GMV in 2H2023. The company confirmed its long-term ambitions to achieve a 5-8% adjusted EBITDA/GMV margin on Group level by 2030 which includes both platform and Integrated verticals.
The Enterprise and New Initiatives segment is performing better than expected due to ad-revenues. GRAB's enterprise and new initiatives segment performed well in 2Q23, with revenue growing by 95% y-o-y (up 51% q-o-q) and reaching US$27m, along with adj EBITDA tripling y-o-y to US$15m. The strong performance was driven by continued growth in advertising revenue, which achieved an annualized revenue run rate of over US$100m. We project Enterprise and New Initiatives segment to register a GMV and EBITDA CAGR of 10% and 71% respectively over 2022-2025F. GRAB is confident in its ability to drive value for merchant partners and top brands. For example, a Brand Lift study conducted for Lotteria Vietnam showed a 9.3x return on ad spend, as well as increases in ad awareness and purchase intent by 13% and 8% respectively. Amazon Singapore also ran a successful campaign with GRAB Ads during Black Friday, resulting in a unique reach of 1.8 million users and a 16% increase in ad awareness.
DigiBank losses are expected to peak in 2023 and then narrow to end up achieving breakeven by 2026. GRAB launched its first DigiBank, “GXS Bank” in Singapore as a joint venture between GRAB and Singtel (ST) in September 2022 after being one of the winners of the Singapore digital bank license in December 2020. In July 2023, GXS Bank started accepting deposits up to S$75,000 (US$57,000) into a savings account after previously being limited to only S$5,000. GX Bank Berhad (GXBank), a subsidiary of GRAB-led digital bank GXS Bank, has been granted approval to begin operations effective 1 September 2023 by the Minister of Finance and Bank Negara Malaysia (BNM). Kuok Group in Malaysia has also teamed up with GRAB and ST as investors of GX Bank in Malaysia. The management has also mentioned that they’re on track to launch DigiBank in Indonesia and Malaysia in 2H23 and expect DigiBank losses to peak in 2023, before reducing to reach breakeven by 2026 from all three banks collectively.
Upgrade to BUY with a higher TP of US$4.29 (prev US$3.16). With group adj EBITDA to be achieved in 3Q23F, we switch to 20x EV to FY24F adj EBITDA of US$572m excluding fintech losses. We value fintech business at US$276m using a conservative 1x gross FY24F revenue. UBER is trading at 20x 12-month EV/adj EBITDA while offering EBITDA CAGR of 44% over FY23-25F. GRAB offers 70% EBITDA CAGR over FY23F-25F excluding fintech losses, supported by reduction in regional corporate costs. Despite lower-margin nature of GRAB’s business, we like GRAB’s ability to gain market share from standalone mobility/delivery players.
Our bear-case TP is US$3.00. This assumes an EV to FY24F adj EBITDA of 15x (vs 20x under the base case) on adj EBITDA of US$427m (vs US$572m) due to irrational competitive challenges.
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