We reiterate our Buy recommendation on Altimeter Growth Corp (AGC US), with our unchanged target price of US$16.50 implying 54% upside. We are the only firm covering the stock, according to Bloomberg.
Grab is the ASEAN tech giant that will be injected into Altimeter Growth Corp in a SPAC deal announced in 2Q21. Its latest results show that it is on track to achieve our GMV (gross merchandise value), adjusted net sales and sales targets for FY21.
Grab's gross merchandise value (GMV) rose 62% yoy in 2Q21 to US$3.9bn, while its adjusted net sales were up 92% to US$550mn.
Total revenue was US$180mn, up 132% yoy. The adjusted EBITDA loss for 2Q21 was US$214mn. Grab's cash liquidity also improved during the quarter as the balance rose 44% yoy to US$5.3bn.
The rise in GMV underlines the robust recovery in ASEAN, as the region returns to normalcy. We present the segmental breakdown of GMV in the table below.
Mobility emerged as a leading contributor to the near-doubling in adjusted net sales, as Grab saw a rebound in its ride services.
We highlight three aspects of Grab's results announcement:
Consumer surveys show that Grab's app has the potential to become ASEAN's super app. A Nielsen IQ survey has placed Grab as the no. 1 brand in Indonesia for food delivery and ride-hailing. Grab's digital payments brand OVO is the no. 1 for payments.
Grab is expanding its GMV organically and through alliances. It announced a strategic alliance with Emtek, a major conglomerate in Indonesia.
The Altimeter deSPAC is on track for completion by the end of the year. Management does not anticipate a delay.
We are bullish on Altimeter (AGC US) for the following reasons:
AGC US is down 30% since the SPAC deal was announced. The underperformance versus, for example, e-commerce rival Sea Ltd (SE US), suggests that AGC US has weakened due to its SPAC structure. This drop is in line with the broader weakness in the SPAC market. AGC US has fallen a further 1% since 2 August, as the retreat from China Tech has dampened enthusiasm for other EM tech firms, even if they have no direct exposure to China and its regulators.
Grab's dominance of the ride-hailing, food delivery and digital payments space in Southeast Asia has not been fully valued by the market, in our view. It has a tight grip on all three areas.
This dominance should be cemented once the merger with Altimeter is completed, as it will be in a superior net cash position versus its competitors Sea Ltd and GoTo.
A comparative valuation suggests Grab is undervalued. It compares favourably to Sea Ltd (SE US), its main listed rival for ASEAN supremacy, as well as LatAm's Mercardo Libre and China's Tencent.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
