Seize: Its Profitability Might Reveal Undervaluation

Southeast Asia is a number of occasions neglected by traders, whereas I feel dangers are decrease in comparison with China and GDP development is rivaling that of India. Massive producers are diversifying their manufacturing places in direction of Southeast Asia, like Vietnam or Malaysia, and this could carry higher dwelling requirements, superior expertise and better wages to these international locations. That’s the reason I’m taking a deeper dive into one of many major beneficiaries: Seize Holdings Restricted (NASDAQ:GRAB).

Enterprise Overview

Seize is a Southeast Asian expertise firm also known as a “super-app” because of its numerous vary of providers. Based in 2012 and headquartered in Singapore, the corporate operates in quite a few Southeast Asian markets together with Singapore, Indonesia, Malaysia, Thailand, Vietnam and others.

Seize focuses totally on deliveries, providing ride-hailing choices for vehicles, taxis, and bikes, together with meals supply (GrabFood), package deal supply (GrabExpress), and speedy grocery supply (GrabMart). Moreover, Seize has expanded into monetary providers with its Seize Monetary Group. This contains their digital pockets, GrabPay, which facilitates in-app funds and service provider transactions. Additionally they provide lending options, insurance coverage merchandise, and different monetary instruments for customers and small companies. Seize’s ecosystem contains different providers like promoting and reward applications as properly.

Seize earns income by way of a commission-based mannequin, gathering a proportion of every transaction facilitated on its platform. They complement this with subscription charges for sure providers and promoting income. Seize faces competitors from different super-apps like GoTo in Indonesia, Shoppe from Sea (SE) and Foodpanda from Supply Hero.

Pillars to success

Regardless of excessive competitors, Seize is the dominant participant in each nation that they’re lively, and the hole is even widening. In 2023, Seize managed to extend gross merchandise worth by 6.8% year-over-year, whereas Foodpanda and Gojek, respectively, misplaced 12.9% and 10% of GMV year-over-year.

Seize’s power is a really distinctive one of their business group, and that is the principle motive for his or her dominance. The primary precedence is bringing sustainable worth to clients. The advantages are excessive retention charges and locals that use your platform. After that, you create community results and development will come with out excessive spending. This mixed with nice timing on dilutive conduct created a stable stability sheet that’s now in a position to buyback shares at low cost costs.

As time passes on and Seize’s providers enhance, they’re able to develop the proportion of shoppers utilizing a number of choices. As well as, clients that use a number of choices per 30 days have the very best retention charges (near 90% for the >three choices), which makes it arduous to lose market share.

The corporate’s transfer in direction of profitability could be seen throughout all of their segments. Deliveries is the most important phase and was up 20% year-over-year. Alternatively, the adjusted EBITDA elevated 107% year-over-year.

Mobility is the second-largest phase and supplies rental vehicles, motorbikes or provides a Taxi driver a platform to seek out clients. This phase grew 26% in This fall, however struggled slightly bit extra on the profitability entrance, with 20% development in adjusted EBITDA.

For my part, Seize’s most promising phase is monetary providers. Many adults in Southeast Asia are nonetheless underbanked and even unbanked, creating an enormous alternative for digital banks and monetary merchandise. The phase confirmed development of greater than 100% in This fall and 12% quarter-over-quarter. The expansion got here at the price of quickly decrease profitability enchancment, as Seize launched their monetary providers (GXBank) in Malaysia, the place they gathered 100,000 new accounts in simply 2 weeks. This got here with a rise in prices quarter-over-quarter.

Nevertheless, GXBank is the primary digital financial institution in Malaysia, making it an unimaginable alternative to develop. Additional, Seize’s monetary providers additionally advantages from the GMV development of the entire platform, because it provides the super-app with cost providers.

Final however not least, Enterprise and New initiatives. It may not sound necessary immediately, however what if I point out promoting? This phase is especially pushed by promoting and grew a whopping 124% year-over-year. Adjusted EBITDA went by way of the roof with a 378% enhance year-over-year, making the phase extremely worthwhile. Give it a while and the promoting enterprise will pull up revenue margins over the approaching years because it grows bigger, for my part. We will now already see that this phase has by far the most important proportion of adjusted EBITDA in comparison with GMV.

Valuation

Seize is much from being a mature firm with a number of enterprise elements nonetheless in a growing state. Subsequently, I consider conventional valuation strategies is not going to work. Once we examine business friends, we will see that Seize is priced fairly costly by way of value to gross sales.

Nevertheless, that is partly justified by having the very best development within the sector and some of the dominant positions within the markets they serve. It’s also supported by the tailwind of GDP development in all of their markets. Seize’s income went from $470 million in 2020 to $2.36 billion in 2023, that could be a 5x in income over three years. The corporate expects income development of 17-20% in 2024 and a reacceleration of development in 2025.

Alongside all the development, the administration has been specializing in profitability and being breakeven. Seize now has a gross revenue margin rivaling that of Southeast Asia’s largest e-commerce participant Sea (SE) and even topping that of Uber (UBER).

Moreover, it’s seen that Seize has been gaining floor within the revenue margin part. Moreover, with the corporate being worthwhile in This fall 2023 the revenue margins are anticipated to proceed to rise. I’d even dare to say the Seize’s revenue margins will probably high all the friends within the coming years, because of increased margins within the monetary providers and promoting phase.

Fortress stability Sheet & Buybacks

Lastly, Seize has by far the strongest stability sheet in comparison with friends, with a present ratio of three.9x. Solely DiDi International (OTCPK:DIDIY) and PT GoTo Gojek Tokopedia (OTCPK:GTOFF) are close to it. The corporate holds virtually $6 billion in money liquidity, accounting for 48.5% of the present market cap. The online money liquidity excluding loans and borrowings is $5.18 billion.

The rationale that Seize holds such a big money place is due to dilutive conduct within the bull market of 2021. And this has been a superb transfer at a time of overvaluation. Proper now, the enterprise is offering money, so no extra motive to problem extra shares to extend capital or use extra leverage.

The administration has even determined to begin a buyback program of $500 million, equal to 4% of the market cap, and to deleverage by the reimbursement of their Time period Mortgage B. In fact, inventory primarily based compensation will eat into the advantages of buybacks. Nonetheless, stock-based compensation has been reducing in 2023 from $412 million to $304 million, which is a wholesome signal.

Takeaway

Seize’s inventory value has not been shifting for some time, regardless of fundamentals steadily bettering over the previous couple of years. The enterprise is lastly break-even and has extra income development with margin enlargement forward. A double tailwind of GDP development and digitalization in Southeast Asia recommend a promising future for the “super-app”.

In 2023, administration was in a position to beat the forecast laid out at first of the yr, and I anticipate no much less for 2024.

Some danger elements to grasp is the potential delay of receiving licensing for digital banking within the different international locations the place the corporate isn’t but current. One other one is additional competitors from Shopee in Vietnam and PT GoTo Gojek Tokopedia in Indonesia. Nonetheless, that is hardly seen within the comparability of the expansion charges, and it seems to be like Seize is pressuring the opposite friends and is taking market share.

I charge Seize a “Sturdy Purchase”. It’s for positive not my typical worth play, however it appears to be neglected and underrated. I anticipate Southeast Asia’s financial system to growth within the coming decade and Seize might be one of many major gamers having fun with the experience.

Editor’s Notice: This text covers a number of microcap shares. Please concentrate on the dangers related to these shares.