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Grab Holdings: A 29% Undervaluation or Investor Caution?

With its latest valuation indicating that Grab Holdings Limited (GRAB) is trading below intrinsic value, investors might see this as an opportunity to enter Southeast Asia’s growing digital economy.

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Based on the widely used Discounted Cash Flow (DCF) model, Grab’s projected fair value sits at $5.98 per share, suggesting a 29% upside from the current share price of $4.23. Despite this optimism, Wall Street analysts remain conservative, with a target price of $4.73—21% below this intrinsic value estimate. Here's a look at what these numbers mean and the broader financial performance of this leading Southeast Asian super app.

Grab’s Two-Stage DCF Valuation
In valuing Grab Holdings, analysts applied a two-stage DCF model, a method that first considers a company’s high-growth phase before stabilizing into a mature growth rate. For Grab, the DCF model accounts for cash flows over the next ten years, discounted to today’s value, reaching a Present Value of Cash Flow (PVCF) estimate of $6.9 billion. Adding the Terminal Value, which represents cash flows beyond this decade, brings Grab’s estimated Total Equity Value to $24 billion. This valuation would imply a fair price of $5.98 per share—a substantial premium to the current market price.

Such valuation techniques highlight the idea that a dollar received in the future is worth less than a dollar today. By discounting future cash flows, the DCF model aims to arrive at a fair value estimate. While this model can offer a reliable baseline for long-term investments, it’s essential to note that it depends heavily on the accuracy of growth projections and discount rates. Small changes in these variables can create sizable shifts in estimated value.

Strong Financial Results Bolster Outlook
In Q3 2024, Grab reported its second positive quarterly profit at $15 million, up by $114 million from the previous year. Quarterly revenue rose 17% to $716 million, driven by growth across all major business segments. Notably, the company’s Adjusted EBITDA hit an all-time high of $90 million, with operating cash flow reaching $338 million—a promising indicator of financial strength as the company continues scaling. Grab’s liquidity position also remains robust, with cash reserves of $6.1 billion at the quarter’s end, fueled partly by the rise in customer deposits in its digital banking operations.

Growth in Grab’s core segments—Mobility and Deliveries—was particularly impressive. On-demand GMV (Gross Merchandise Volume) grew 15% year-over-year, while Deliveries revenue climbed 13% year-over-year to $380 million. Mobility revenue expanded 17% year-over-year to $1,694 million, driven by an increase in monthly transacting users (MTUs) and higher average transactions. Meanwhile, GrabFin, its financial services division, saw revenue jump 34%, largely due to strong lending growth and the addition of new banking products.

Strategic Considerations and Investor Takeaways
While Grab’s DCF model suggests an undervaluation, investors should also consider the DCF model’s limitations. The DCF is highly sensitive to inputs, particularly discount rates and growth assumptions. For Grab, a cost of equity of 6.7% and a beta of 0.981—indicating moderate stock volatility compared to the broader market—were used, yet shifts in the discount rate or growth estimates could result in significantly different valuations.

Moreover, as a Southeast Asian company, Grab faces region-specific regulatory and operational challenges that could affect growth trajectories. Balancing these risks are Grab’s ongoing efforts to improve operational efficiency, as evidenced by its recent quarter’s results and cost-optimization initiatives. For investors, this means the intrinsic value suggested by the DCF is not a guarantee of performance but rather a guide to potential value if Grab continues to deliver growth and profitability at current or improved rates.

In short, while the model presents a promising outlook for Grab, careful evaluation and a diverse approach to valuation will provide investors with a clearer perspective on the company’s true investment potential.


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