Grab Holdings Ltd: Better clarity on long-term adj. EBITDA
- GRAB is benefitting from benign competition in delivery and mobility segments
- Our FY24F/25F group adj. EBITDA is 13%/8% higher than consensus on better expectations from enterprise & new initiatives and fintech segments
- Maintain BUY with a revised TP of US$4.26 (prev.: US$4.29) due to slightly higher regional corporate cost
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Management has provided an improved guidance for FY23F adj. EBITDA. GRAB is expected to record an adj. EBITDA loss of US$20-25m, an improvement from the previous guidance of US$30-40m, as it continues to see an improvement in margins for all key segments.
Contribution from enterprise & new initiatives could be higher than expected. GRAB’s enterprise & new initiatives segment has been recording steady growth in adj. EBITDA, with adj. EBITDA as a percentage of GMV rising from 17% in 3Q22 to 42% in 3Q23. This was largely supported by its growing advertising business and increasing adoption of self-service advertising. In 3Q23, the total number of active advertisers joining the platform grew 83% y-o-y as GRAB deepened advertising penetration in its merchant-partner platform. GRAB also saw the average ad spend increasing 44% y-o-y. GRAB remains focused on deepening merchant engagement with its advertising services and driving a value uplift for its merchant partners and other top brands. GRAB highlighted that they are seeing a strong return on advertising sales (ROAS) of 7 to 9 times for their long-tail advertisers. This is a sign that its platform is a valuable tool for businesses of all sizes. Consequently, our revised forecast for the Enterprise and New Initiatives segment's adj EBITDA for FY24F/25F reflects a 4%/5% increase, which is also 9% higher than the consensus, underpinned by the escalating momentum of the advertising business.
Fintech’s adj EBITDA losses (Grabfin + DIgibank) to reduce in FY24F. Grabfin adj losses are on downward trajectory with reduction in funding costs for the payment business and a rise in the lending business. The reduction in losses is also driven by lower overhead expenses in GrabFin business as GRAB improves operational efficiencies. Management has guided for DigiBank adj EBITDA losses to peak in FY23F due to investments while fintech’s EBITDA turnaround is projected in FY27F.
Consensus is expected to raise FY24F/25F adj. EBITDA. Our group adj. EBITDA in FY24F/25F is 13%/8% higher than the consensus, stemming from lower regional corporate cost, better-than-expected contribution from the enterprise & new initiatives segment and lower losses from the fintech segment. We expect the consensus to raise FY24F/25F adj. EBITDA, as regional corporate cost could be even lower due to the recent reduction in headcount costs and continued cost optimisation.
Maintain BUY with a revised TP of US$4.26 (prev.: US$4.29). We peg to 21x EV to FY24F adj. EBITDA of US$511m (prev.: US$572m) excluding fintech losses due to higher regional corporate costs more than offsetting the improving contribution from both the enterprise & new initiatives and fintech segments. We value the fintech business at 3.5x FY24F gross revenue. UBER is trading at 22x 12-month EV/adj. EBITDA while offering an EBITDA CAGR of 42% over FY23-25F. GRAB offers a 60% EBITDA CAGR over FY23F-25F excluding fintech losses, supported by the stable deliveries and mobility segments coupled with the rising enterprise & new initiatives segment. Despite the lower margin nature of GRAB’s business, we like its ability to gain market share from standalone mobility/delivery players.
Our bear-case TP is US$3.05. This assumes an EV/EBITDA of 15x (vs. 20x under the base case) on an adj. EBITDA of US$455m (vs. US$511m) for mobility and delivery due to irrational competitive challenges. We value fintech business at zero value (vs US$822m in base case).
| FY Dec | 3Q2022 | 2Q2023 | 3Q2023 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 382 | 567 | 615 | 61.0 | 8.5 |
| Cost of Goods Sold | (321) | (376) | (375) | 16.8 | (0.3) |
| Gross Profit | 61.0 | 191 | 240 | 293.4 | 25.7 |
| Other Oper. (Exp)/Inc | (351) | (367) | (333) | (5.1) | (9.3) |
| Operating Profit | (290) | (176) | (93.0) | (67.9) | (47.2) |
| Other Non Opg (Exp)/Inc | (22.0) | (29.0) | (32.0) | (45.5) | 10.3 |
| Associates & JV Inc | 0.00 | 0.00 | 0.00 | nm | |
| Net Interest (Exp)/Inc | (44.0) | 25.0 | 14.0 | nm | (44.0) |
| Exceptional Gain/(Loss) | (4.00) | (2.00) | (4.00) | nm | 100.0 |
| Pre-tax Profit | (360) | (182) | (115) | 68.1 | 36.8 |
| Tax | (4.00) | 5.00 | (16.0) | 300.0 | (420.0) |
| Minority Interest | (15.0) | (13.0) | (8.00) | 46.7 | (38.5) |
| Net Profit | (379) | (190) | (139) | 63.3 | (26.8) |
| Net profit bef Except. | (375) | (188) | (135) | 64.0 | (28.2) |
| EBITDA | (252) | (140) | (56.0) | 77.8 | 60.0 |
| Margins | |||||
| Gross Margins (%) | 16.0 | 33.7 | 39.0 | ||
| Opg Profit Margins (%) | (75.9) | (31.0) | (15.1) | ||
| Net Profit Margins (%) | (99.2) | (33.5) | (22.6) |
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