Description

CERTAIN STATEMENTS CONTAINED HEREIN REFLECT THE OPINION OF THE AUTHOR AS OF THE DATE WRITTEN. NO INVESTMENT DECISIONS SHOULD BE BASED IN ANY MANNER ON THE INFORMATION AND OPINIONS SET FORTH IN THIS REPORT. YOU SHOULD VERIFY ALL CLAIMS, DO YOUR OWN DUE DILIGENCE AND/OR SEEK ADVICE FROM YOUR OWN PROFESSIONAL ADVISOR(S) AND CONSIDER THE INVESTMENT OBJECTIVES AND RISKS AND YOUR OWN NEEDS AND GOALS BEFORE INVESTING IN ANY SECURITIES MENTIONED. Please see additional Important Disclaimers at the end of this analysis.

Business Overview

I believe that Grab is the best positioned mobility/food delivery led super-app ecosystem in the world and the only global player with best-in-class franchises in both mobility and food delivery.  According to Grab’s 4Q21 earnings presentation, it has #1 positions across SE Asia in high frequency, large underpenetrated total addressable markets (“TAM”) – 71% share in mobility (3.9x the #2 player); 51% share in food (2.1x the #2 player); and 21% share in e-wallet fintech/digital payments (1.3x the #2 player).  For perspective, Grab’s relative share/scale advantages is akin to combining Uber and Doordash into a single ecosystem.  

Grab was founded in 2012 as part of a HBS business plan competition by classmates Anthony Tan (son of Tan Chong Motor Holdings founder, one of Malaysia’s biggest auto distributors and one of its  wealthiest families) and Tan Hooi Long.  The business operates across delivery, mobility, and digital financial services and has established relationships with 25MM consumers, >2MM merchants, and >5MM driver partners across >400 cities in 8 SE Asia countries – Cambodia, Indonesia, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam.  It provides a single “everyday everything” super app that enables millions of people to order food or groceries, send packages, hail a ride or taxi, pay for online purchases or access services provided through its platform such as lending, insurance, wealth management, and telemedicine.  Singapore and Indonesia are its two largest markets and collectively account for >50% of Adjusted Net Sales in 2020, while only Singapore accounts for more than 50% of IFRS revenue (Adjusted Net Sales less Customers/Drivers’ Excess Incentives).  Malaysia and Vietnam were the other major IFRS revenue contributors at mid/high-teens % each.  The company reports results from four major segments: 

1. Mobility

Grab dominates across SE Asia except for Indonesia where it splits the mobility market ~50/50 with Gojek.  Other reports say Grab has been gaining share over time and has nearly 60% share of revenues given its dominant 60%+ share in the higher ASP car and taxi segment vs. Gojek’s leading 50-60% share in motorbike rides.  Given the size of Indonesia’s market, it will be important for Grab to win (or at least maintain its equitable split) with Gojek.  Charts below are from UBS report on 12/9/21 (left) and Citi report on 12/15/21 (right):

2. Delivery

Grab is #1 in all markets with the exception of Vietnam where it is a close #2.  It is generally a share gainer across these markets.  However, I want to note that ShopeeFood (Sea) is a newer entrant into the regional oligopolies.  Given Sea’s strong historical execution and super app ecosystem, I believe it is important to monitor its progress and disruption to the market equilibrium.  Encouragingly, Sea recently internally announced layoffs in its ShopeeFood business citing focus on sustainable scaling and reallocation of resources on priorities, a signal that competition may be rationalizing. (https://www.channelnewsasia.com/business/shopee-layoffs-southeast-asia-shopeefood-shopeepay-e-commerce-giant-2745751).  The chart below from Evercore report on 12/15/21 shows the delivery competition in Southeast Asia.

3. Financial Services 

The segment includes both fintech and digital banking.  Within fintech, there are four key revenue streams – payments, insurance/investment referrals, remittances, and buy-now-pay-later.  Today, revenue is driven primarily from digital payment processing fees charged to merchant partners based on total payments volume (“TPV”) processed through the Grab platform.  Currently, I estimate that TPV is split 60/40 on-platform vs. off-platform though off-platform is expected to grow 1.5-2x faster over time.  Fintech includes revenue from effective interest earned on loans and advances provided to merchant partners, driver partners, and consumers; fees for wealth management; and insurance distributions.  Over the long term, insurance/investments referrals are expected to be the biggest contributor.  On digital banking, Grab is in the process of setting up a digital bank in Singapore with Singtel after being awarded a license by the regulator in December 2020; Grab-Singtel was also recently awarded a digital bank license in Malaysia.  Financial services increases user retention and engagement vs. cash users – for example, GrabPay users have 2.2x increase in TPV per monthly transacting user (“MTU”), 2.2x increase in 10+ month retention after first use, and a 1.8x increase in % of users who use a 2nd Grab product (>50% of Grab’s MTUs use GrabPay) per its April 2021 investor presentation.  While fintech/digital payments is still in top of the 1st inning, we believe there is sufficient TAM to accommodate multiple winners with super apps have structural advantages in customer acquisition, retention, and engagement.  

4. Enterprise & Other 

This segment has all the other non-core businesses and new initiatives.  Today, the largest contributors are advertising (46% of Grab’s merchant partners utilized GrabAds in 2020) and anti-fraud offering to the company’s financial institution partners and on-demand delivery relationships.  GrabAds over-indexes on profit given its high margin revenue stream (we estimate ~90% gross margin).

SE Asia is structurally attractive vs. developed markets

Globally, the online food delivery, ride-hailing, and digital wallet payments are in the earlier stages of being penetrated.  This is especially the case in SE Asia where the markets and opportunity are structurally more attractive than developed markets for a few reasons: * all stats below are sourced from independent market research report carried out by Euromonitor (commissioned by Grab) and Grab Holdings F-4, unless otherwise specified

1. Large population: There are 670MM people across SE Asia; if considered together as a country, SE Asia would be the third largest population in the world.  Population growth is also above average, with the exception of Thailand and Singapore whose flattish growth is more in-line with developed markets’ (source: World Bank 2020 stats) – Indonesia 1.1%, Malaysia 1.3%, Philippines 1.3%, Vietnam 0.9%, Cambodia 1.4%, Myanmar 0.7%