Target Price for Grab Holdings (2023): A sell with -50% downside

On 9 January 2022, I had initated coverage of Grab when its share price was at $6.80. My fair value estimate was a $2.25-$3.00 range.

A year has passed and we did see Grab's share price falling along with the US Tech bust and for a few months, the market value did trade at around my fair value range. Given that a year has passed, it is a good opportunity to update my fair value of Grab.

What has Changed

Grab has changed its focus from growing at all cost to one focused on profitability and margins. A few changes are:

(i) Reduction in commission given to its riders

(ii) Removal of low value financial transactions in Grabpay that was enabled for use as AXS transactions in Singapore.

All in all, the company expects continued improvement at the EBITDA level. To shareholders, this is good news as the company is now focused on profitability, however, this will come at the expense of a slow growth in GMV, TPV figures.

Digital banking/Fintech

On the fintech front, Grab has started its GXS bank. However, it seems that another online bank ("Trust" bank set up by NTUC/Standard Chartered) has turned up and is fighting GXS and Sea Group's Marin bank. From the looks of it, it is unlikely none of them will be the 'winner takes all' and it is safe to assume it will be a tie scenario. Thus the fair value of Grab's fintech is reduced from US$8 billion to US$3 billion (the scenario of a tie mentioned in my 2022 write up).

Delivery

Nothing has changed and I expect it to be worth US$4 billion.

Mobility

Margins for mobility has improved greatly with the latest quarterly loss standing at US$100 million. I feel Grab may be able to turn this around and be able to report a US$200 milllion in annual profits, hence I am abscribing a US$2 billion valuation. 

Valuation of Grab

Based on the above, on a sum of parts valuation, Grab's value should be US$9 billion.

Moving forth with Grab stopping its unprofitable expansion plans and focusing on margin improvements, I expect losses to be reduced to the US$1 billion range. With reported equity at US$6.6 billion, this means a an expected equity value at about US$5.6 billion. 

Grab's share price is currently at US$3.86 (Market Cap: US$14.85 billion); therefore the low range expectation is for Grab to trade at its end 2023 value of US$5.6 billion or at the high range of its sum of parts value. This places the fair value/share price to be at US$1.50 - US$2.40.