Grab Holdings  (GRAB) $3.16 - A Small Investment Can Be Made For This Low Multiple Play

Industry/Sector/Type - Ride-hailing and food-delivery company in Southeast Asia. Secular growth, but a very low margin business. It is a high risk/high reward play on its low multiple and worth a small investment. The stock sells for only 20x earnings growing over 30%, and 2.2x sales growing at over 20%  - 50% of the company’s $12Bn market cap is in CASH

‍Biggest catalyst for the stock - Valuation is low for a market leader in an under penetrated growing South East Asian market.

‍Positives

1. Grab Holdings is the market leader and the dominant ride-hailing and food-delivery company in Southeast Asia, with a Uber and DoorDash like customer presence and reach .
2. Grab is the market leader in the densely populated 705.8Mn strong Thailand, Malaysia, Singapore, and Indonesia - a large under penetrated TAM, with Grab still just scratching the surface with 54 million users.
3. The business continues to grow with Gross Merchandise Volume increasing 21% in the last quarter indicating after the previous decade of over 35-40% growth.
4. Grab dominates closest competitors Bolt and LINE MAN who compete mainly on price.
5. The stock sells for only 20x earnings growing over 30%, and 2.2x sales growing at over 20%  - 50% of the company’s $12Bn market cap is in CASH
6. Grab finances customers, driver-partners, and merchant-partners across Southeast Asia through Grab Finance (the lending arm of Grab Financial Group) and its digital banking operations - this could be the one big competitive advantage and higher margin business lifting overall margins.

‍Negatives

This is a high risk high reward play, and GRAB has been a basket case for investors dropping 69% in the last 5 years and 51% in the past year

1. ‍This is a very low margin environment with cutthroat competition and small invoice sizes - operating margins are around 2-3% compared to 13-14% for US companies like UBER.‍
2. Higher oil prices hurt the Southeast and these companies disproportionately.
3. Regulation - Public outcry similar to the US that they need to pay their drivers more
4. AVs are a threat but it's still in its infancy. 

Return

1 Year -51% 5 Year -69% 10 Year 

Valuation

Three years forward.

P/S 2.8 Sales Growth 20% P/S Growth 0.14 - Low but because of margins

P/E  21 Earnings Growth 30% PEG 0.7

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Cash Flow Margin 2-4%

Operating Margin 2-3%

I'm going to invest a small amount, because in spite of the market leadership, clearly this industry has a lot of challenges in SouthEast Asia with such small margins, and perhaps even with consolidation and growth this will remain a tough environment.

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