On Grab and Sea

By | CYH

It was a proud moment for Singapore’s business scene as Grab became the largest company to list via a SPAC merger.

1) While the focus might be on the share price tumbling 21%, it is worthwhile to celebrate this moment.

2) Southeast Asia is a very fragmented market and it is harder to scale across countries with different language, culture, religion, politics, economic progress and consumer preferences. So, give Grab some credit.

3) I am heartened to see more Singapore-based companies making to the world stage. Again, not an easy feat for our little red dot. We need to continue to be an attractive platform to attract the best talents and companies to set up their HQ here in order to stay relevant and prosperous for decades to come.

4) We are starting to see some fruits bearing. Sea is another great success story for Singapore. It has been added to the MSCI Singapore and has surpassed DBS as the largest listed Singapore-based company. In terms of market cap, Sea is at US$145B, DBS at US$59B and Grab at US$41b.

5) I believe Grab would eventually be added to the MSCI Singapore index and I hope to see more. That means that MSCI Singapore ETF might be a more diversified investment than STI ETF. It is more reflective of the new economy too.

6) Between the two, I prefer Sea than Grab as an investment. They are different businesses to begin with. Sea has gaming, ecommerce and fintech. Grab has ride-hailing, deliveries and fintech. Fintech is their commonality where both have received Singapore’s digital banking licenses this year.

7) Grab has joined hands with SingTel to pursue the neobank services while Sea is going alone. I am not a fan of joint venture as you will increase the bureaucracy and often times cultural and vision mismatch will create a lot of friction in developing the product and service. Grab and SingTel don’t have the same DNA.

8) Ride hailing is a difficult business. Look at Didi which has more than 90% market share in China and yet to turn a profit. Uber has been struggling too and the recent profitable quarter was due to one-off gains from investments, not from its core business. Similarly Grab has dominant market share in S.E.A. and has yet to make the business profitable, just EBITDA positive. We can accept a young and fast growing company to be in losses as it is spending to capture market share quickly. But if you already have the market share in ride hailing and still not profitable, when would you be?

9) Ecommerce is a different story. Alibaba has been profitable after capturing the Chinese market. Amazon too, with the US market. Sea has yet to be profitable for its ecommerce arm because it is expanding fast. But the chances are high for Sea to be profitable in this segment.

10) Moreover, Sea has already achieved operating profits on its gaming segment. It doesn’t report the net profits by segment but I believe it is positive as well. Whereas I believe none of Grab’s segments are profitable yet.

11) I am not anti-Grab. I am just discussing the investment merits relative to another high potential Singapore-based tech company. I believe Grab will continue to grow well and rise to greater heights. I also wish to see more young Singapore-based companies get added to MSCI Singapore Index. Huat ah!

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