INTRODUCTION:
GRAB was 1 of the earliest entrants into the Southeast Asia market for ride sharing, in Singapore it was at loggerheads with Uber and eventually beat out Uber, taking over Uber in Singapore and dominating the market. GRAB is trying to paint the same dream as Alibaba of being a super app for day to day use.
REVENUE:
I used a semi-bottoms up approach when creating the revenue model of GRAB, using Gross Merchandise Value (GMV) and what %of GMV translates into Revenue. GMV is the total merchandise value that GRAB is selling, but because some of that merchandise value is given to e.g. Riders so GRAB's actual revenue is lesser than GMV. As a simplifying assumption, since GRAB is at core a ride sharing company, I look at historically what % of taxi fare a traditional taxi company takes as commission. This number is about 33%, but I'd assume a lesser amount in my forecast given that GRAB is a new app that needs to build up their network effect. (SOURCE)
Y/Y, Revenue/GMV will grow at a slow pace in the starting years of my forecast as the taxi industry slowly sets off into the sun and ridesharing begins to gain more prominence. So in the later years of my forecast, Revenue/GMV starts growing rapidly.
REVENUE MODEL: (SOURCE)
COST:
A cost breakdown of GRAB as of FY22 is 94.6% Incentive given to drivers, 19.5% Marketing, 45.1% G&A, 32.5% R&D. The percentage adds to more than 100% because GRAB is losing money.
Taking Alibaba and ComfortDelGro as reference for how much the margins should be for GRAB.
Alibaba’s past 3 years EBIT margin was at 11%.
“ComfortDelGro’s taxi earnings before interest and taxes (EBIT) margin is…15.6% in 2019” (SOURCE)
I’d assume that GRAB’s perpetual margins are going to be the average of both ComfortDelGro and Alibaba.
I believe most of the cost savings will come from reduction in incentive given to drivers because with the strong network effect, GRAB essentially has a monopoly over ride sharing forcing drivers to accept less favorable terms.
ASSUMPTIONS:
Taxes, tend towards Singapore marginal corporate tax rate at 17%. GRAB is based on Cayman islands, but it does not seem possible for them to avoid taxes and since most of their business operations are done in Southeast Asia, I’d assume they will eventually move to Singapore and pay Singapore taxes.
NOLs, I assume that GRAB will turn profitable in 2027. Breakdown of NOL expiry dates (SOURCE), Under the assumption that during the period of my forecast, no more NOLs are added. Unutilized NOLs as of 2022 are 3275M. Taking into account the time factor, NOLs are 2163M.
Employee stock options breakdown(SOURCE) Using the treasury stock method, 19.9M stocks are added.
It took Alibaba 6 years to launch all flagship services and break even. Assume that GRAB needs about 8 years, because BABA entered at a time where there were few competitors and the market was relatively new, the market conditions when BABA entered is significantly different from today’s landscape. 8 Years may even be too fast for GRAB.
Change in NWC, Opting for less granularity I'd assume that the day turnovers are average of historical data and assumed constant throughout
Change in NWC Schedule: (SOURCE)
WACC:
COST OF EQUITY
RFR (1M Avg) = 3.82%
Beta = 0.88
S&P 500 Earnings Yield (1M Avg) = 4.25%
4050 = (4050 * 4.25%) * (1+16%) / (1+R) + [((4050 * 4.25%) * (1+16%)) * (1+3.82%) / (R – 3.82%)] / (1 + R) ^ 2
R = 10.3%, ERP = 6.48%
COE = 9.52%
COST OF DEBT
GRAB has a bond rating of BB
BB Bond Yield (1M Avg) = 6.92%
WEIGHTAGE
LOAN Schedule: (SOURCE)
Debt = 1400M
Share Price (1M Avg) = $3.49
Shares O/S = 3968M
Market Value of Equity = 13848M
%Equity = 90.8%
%Debt = 10.2%
Marginal Tax Rate = 17%
WACC = 8.65%
CONCLUSION:
Ultimately, I price GRAB at about $1.57.
The superapp dream sold by GRAB which management keeps feeding to shareholders is inflating their valuation artificially. Management keeps pushing out this metric of “Adjusted EBITDA” but this adjustments takes out a lot of things, a lot of seemingly recurring “One-Time off transaction” and in turn rewards managements for beating their “Adjusted EBITDA”. They are not running towards the goal post, the goal post is being moved nearer to them. But, given that GRAB is still the largest player in Southeast Asia which is yet to be fully penetrated especially in countries without mobile access, the potential is quite high but I don't like the tale the management constantly spins about “Adjusted EBITDA”, it seems as if they are trying to convince themselves instead of investors.
Leave a Reply