Southeast Asia-based super app Grab Holdings Ltd is on course for positive profitability and cash flow by 2024-2025. The Singapore-based company continues to expand scale while maintaining cost discipline, S&P Global Ratings said in a note on Monday.

“Grab reported 2022 operational results that slightly beat our estimates. Cash burn for the provider of transportation, delivery, and payments solutions was also lower than our expectation,” the research house wrote. The company had a year-end cash balance of $5.1 billion (versus $8.2 billion in 2021). This was in line with the research house’s expectation.

“2023 top-line growth should be robust, amid rising gross merchandize value and controlled consumer incentives. We expect losses to get smaller, as Grab focuses on cutting costs and maintains disciplined spending,” it wrote.

A sizable cash balance will support Grab’s operations while its earnings before interest, taxes, depreciation, and amortization (EBITDA) remains negative. The company has brought forward its profitability goals to the fourth quarter of 2023, from the second half of 2024.

“We continue to believe Grab will only achieve positive EBITDA in 2024 and positive operating cash flow in 2025. This is because fierce competition, evolving regulations, and reduced consumer spending amid slowing economic growth are dampeners to the company’s business turnaround.

The stable rating outlook on Grab reflects S&P Global Ratings’ view that the company will maintain sufficient liquidity to tide it through until it reaches positive EBITDA and cash flow by 2025.

Grab’s revenue more than doubled to $1.4 billion in 2022, from $675 million in 2021. A 24 percent jump in gross merchandize value and 16 percent increase in transaction users helped. Adjusted negative EBITDA slightly narrowed to $793 million from $842 million in 2021. This reflected continued cost reductions and optimization, S&P Global Ratings noted.

Maybank Research upgrades Grab to “buy”

In a separate research note, Maybank Research has upgraded Grab to “buy” from “hold” with a higher target price of $3.80 (from $3.40) as Grab could potentially to return to profit sooner than expected as competition has eased and there’s a confluence of drivers.

Its financial year 2022 (FY22) net loss of $1.74b (51 percent improvement) was narrower than Maybank Investment Bank Group and street estimates at 98 percent/92 percent respectively, mainly due to narrower adjusted EBITDA loss ($793 million, +6% y-o-y) and elimination of the non-cash interest expense of Grab’s convertible redeemable preference shares.

The research house also raised its FY23-FY25 revenue forecast by 5-15 percent, as its gross merchandise value (GMV) is showing resiliency (+11% y-o-y) despite scaling back on subsidies offered to driver-partners and consumers.

Maybank Research also noted that Grab brought forward its group adjusted EBITDA breakeven guidance from second half of 2024 (2H24) to fourth quarter of 2023 (4Q23).

“We think its decision to focus on profitability reflects its market leadership, which has allowed tapering of incentive spending without compromising user retention, even at the expense of top-line growth,” the research house wrote.

“With tailwinds from the reopening and recovery in tourism across Southeast Asia, we forecast mobility EBITDA to rise by 45 percent year-on-year in FY23, driven by 29 percent growth in GMV. Meanwhile, we believe deliveries can record FY23E EBITDA of $183 million, or an EBITDA-to-GMV ratio of 1.8 percent,” it wrote in a note dated Feb 24.

Aside from reducing incentives, Grab is improving its algorithm to enhance driver efficiencies while introducing affordable pricing for meals and tieredpricing for food deliveries, which should grow its order density and further improve unit economics, the research house added.

Grab to breakeven earlier than expectation after recording narrowed losses