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 ComfortDelGro (Traditional Taxi) and Kakao (Superapp) as reference for how much the margins should be for GRAB.

Kakao’s EBIT margins for FY21 and 22 is 9.7% and 8.2% respectively.

“ComfortDelGro’s taxi earnings before interest and taxes (EBIT) margin is…15.6% in 2019” (SOURCE)

Assuming that GRAB’s margins is in between Kakao and ComfortDelGro, slightly leaning more towards ComfortDelGro’s as ComfortDelGro is reflective of GRAB's main business of being a ride hailing app.

ASSUMPTIONS:

Taxes, GRAB's taxes tend towards Singapore marginal corporate tax rate at 17%. GRAB is based on the 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, ESOs breakdown(SOURCE) Using the treasury stock method, 19.9M stocks are added.

Time to profit, It took KakaoTAXI 3 years to break even(SOURCE). Because Kakao had already been a large player when they entered the ride sharing business and had been previously profitable, the market conditions are drastically different. I’d assume that GRAB takes about 7 years from the first year they started reporting their financials.

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)

CapEX and D&A, GRAB have been Net negative CapEX from 2019 – 2022. I’d assume that they ramp up Capital Expenditure for 3 years in line with management’s goal of wanting to fully penetrate into Southeast Asia which has yet to be substantially broken into by the company.

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, at base case I price GRAB at about $2.04. 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 adjustment 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.

DCF: (SOURCE)
SANITY CHECK: (SOURCE)
FULL DCF: (SOURCE)