Grab’s share price set to rise if it buys Foodpanda

FILE PHOTO: A Grab logo is pictured at the Money 20/20 Asia Fintech Trade Show in Singapore, March 21, 2019. REUTERS/Anshuman Daga/File Photo

SINGAPORE: Grab Holdings’ potential acquisition of rival Foodpanda in South-East Asia could lead to it gaining a larger share of the regional online food delivery market and help it grow revenue at a time when the company is under pressure to turn a profit.

Analysts also said the move, if it goes through, could give Grab’s share price a needed boost.

Since the firm’s debut on the Nasdaq stock exchange on Dec 2, 2021, the mobile tech company’s shares have lost 72% of their value, and now trade at US$3.43 a share.

Last Wednesday, Delivery Hero confirmed plans to sell its Foodpanda business in Singapore, Cambodia, Laos, Malaysia, Myanmar, the Philippines and Thailand.

The Frankfurt-listed online food company has said it wants to focus on turning a profit this year and may exit markets where it is not the No. 1 player.

A subsequent report from German media named Grab as a potential buyer, and noted that the deal could be worth just over ¤1bil.

While Grab has yet to comment, analysts at HSBC noted in a report last Thursday that at ¤1bil, Grab would be paying around 1 to 1.1 times foodpanda’s 2022 sales revenue in the markets mentioned for the business.

The analysts added that the move is favourable for Grab, which is now trading at a valuation of 2.7 times its expected 2023 sales.

This implies that Grab would be buying Foodpanda at a lower valuation compared with its current market valuation.

More importantly, consolidation in the region’s online food delivery industry would eliminate competition for Grab in its key markets and lead to higher profit margins driven by cost synergies, lower incentives and lower customer acquisition costs, the analysts said.

Data platform Measurable AI estimated in May 2022 that Foodpanda accounts for 35% of the food delivery platform market in Singapore, compared with Grab’s 56%, implying a 91% share of the local market.

Foodpanda is currently also the third-largest food delivery company in Thailand behind Grab and Line Man Wongnai, which have a collective market share of 75%, according to DBS Group Research.

Nirgunan Tiruchelvam, head of consumer and Internet at investment firm Aletheia Capital, welcomes a Grab acquisition of foodpanda.

“There is not enough room in Singapore and Asean for multiple online food delivery players.

“This move, if it takes place, will add scale to Grab’s business and enable it to be operationally profitable much sooner,” he said.

Before factoring in the Foodpanda acquisition, Tiruchelvam estimated that Grab could turn profitable at the earnings before interest, tax, depreciation and amortisation (ebitda), or operational, level in 2024.

He has an ebitda forecast of US$224mil in 2024, and US$658mil by 2025.

Grab is also expected to increase its mobility market share in Singapore and Indonesia, where rival Indonesian mobile tech company Goto is scaling back on transport incentives and growth in favour of profitability, DBS analysts said in a report last Thursday.

Goto, which runs the Gojek ride-hailing app in Singapore and Indonesia, cut spending on driver and passenger incentives by 35% in the second quarter of 2023 compared with the year before, in efforts to save about one trillion rupiah.

In Singapore, Gojek’s fares are also 20% to 30% higher despite it having a smaller fleet of cars and fewer features, such as options for shared taxis and child, cyclist or pet-friendly rides, compared with Grab, the DBS report said.

Source: The Star


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