(Bloomberg) -- Grab Holdings Ltd.’s ability to cut costs and edge out rivals in Southeast Asia’s ride-hailing arena helped push its share performance above global peers this quarter, with some analysts citing further gains ahead.
Brokers are rushing to lift the Singapore-based firm’s price target, with Evercore ISI International Ltd. among those citing increased profit as it benefits from scale. Operating profit is expected to reach $6.5 million in the current quarter, according to data compiled by Bloomberg, compared with a $38 million loss in the preceding three months.
Grab, which has seen its US-listed shares surge 35% since end September to become the best ride-hailing stock globally, is finally turning its fortunes around as it focuses on cost reduction and growing its user base.
“We believe secular growth, leading market share and scale will drive significant profitability for Grab over time, just as they have for Uber globally,” Evercore analysts including Mark Mahaney wrote in a note.
After its third-quarter profit beat in early November, at least 22 analysts raised their target prices, according to data compiled by Bloomberg. Average analyst forecasts suggest shares could reach $5.55 in 12 months, which is more than 8% higher from the stock’s last close.
The company’s continued strength in core services, paired with an escalation in its digital banks’ growth, will build momentum in the fourth quarter, said Maybank Securities analyst Hussaini Saifee. Grab’s scale advantage, which smaller players lack, has helped it spend less to incentivize customers and gain income opportunities for its drivers, analysts added.
Despite the latest turnaround, the challenge will be for Grab to continue amassing users in the region, with a large gap in penetration relative to peers like Uber Technologies Inc. elsewhere.
Higher valuations may also hurt prospects. Grab is trading at 3.2 times price-to-book, higher than Indonesian competitor GoTo Group’s 2.3 times. According to Morningstar Inc. Analyst Kai Wang, margins will have to expand by a few hundred basis points for both delivery and ride sharing to keep supporting the rally.
Still, Southeast Asia’s market remains buoyant, supported by its relative immunity to potential trade tensions or tariff risks under a second Donald Trump presidency. Further good results will likely keep things moving. The stock is “definitely generating a lot of new interest from investors,” said Citigroup Inc. analyst Alicia Yap.
--With assistance from John Cheng and Olivia Poh.
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