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Didi will pave the way for EM ride-hailing companies like Grab

  • Didi has surged 16% since its IPO, shrugging off the recent Chinese anti-trust probe

  • Didi has paved the way to profitability for ride-hailing companies. Exposure to EV and robotics is an added attraction

  • We are positive on other EM ride-hailing companies such as Grab (AGC US: Buy)

Didi will pave the way for EM ride-hailing companies like Grab
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
2 July 2021
Published byTellimer Research

Didi Global Inc (DIDI US), the Chinese ride-hailing giant, has risen 16% since its IPO. Its current market capitalisation is US$79bn.

Didi became the biggest Chinese company to list in the US since Alibaba. We are confident that Didi could eclipse Uber's valuation and market position. It will also pave the way for EM ride-hailing companies (such as Grab), which have better profitability prospects than Uber.

DiDi's price performance

Following its blockbuster IPO, investors should be aware of the following drivers for the stock:

(1) Did is being added to indices as a core global holding company

DIDI US will be added to the Dow Jones Global Equity Indexes on 12 July. It has qualified for the fast-track IPO entry.

Separately, FTSE Russell recently announced that Didi would be added to its global index on 8 July.

(2) Didi has paved the way to profitability, while Uber is facing a sea of red

Didi has increased its net revenue by 36% yoy in FY 20. In contrast, Uber's net revenue fell by 13% in FY 20.

Even with the reopening in the US and other markets, Uber is still struggling. In Q1 21, Uber's net revenue was down 1% yoy, while Didi's net revenue rose by 106% yoy over the same period.

As Uber falters, its prospects for profitability are dimming. Meanwhile, DIDI US has a chance to generate a net profit by FY 22. In Q1 21, it reported a comprehensive net income of US$95mn on gross revenue US$6.4bn.

EBITDA: Uber vs. Didi (US$mn)

(3) Didi is heavily invested in EV and Robotics

Didi already has the world's largest network of electronic vehicles (EV). It has 1 million EVs as of 31 December 2020. It also has the biggest EV charging network in China, with a 30% market share.

In addition, it operates 100 autonomous vehicles (AV) – driverless vehicles that rely on robotics rather than human intervention – and is investing heavily in the field. It has 1,923 patents for autonomous vehicles.

Both EV and robotics are set to disrupt the auto industry. EV is more energy-efficient, with Tesla having led the way in this field. Robotic vehicles are the next stage in the ride-hailing revolution.

(4) Didi should be valued as a "disrupter of disrupters"

Didi could achieve US$8bn in net revenue in FY 21, according to Bloomberg consensus. Didi's superior revenue growth and profitability metrics suggest that it deserves a vast premium to Uber. Didi's exposure to EV and robotic vehicles means that it may disrupt a disruptive industry (with ride-hailing already disrupting taxi services).

Tesla trades at 10 times the EV/Sales multiple of traditional autos like General Motors. Uber is at 9.3x EV/Sales. Didi may command a 13x FY21 projected EV/Sales valuation due to its superior prospects. This would place it at a US$100bn enterprise value, edging ahead of Uber's enterprise value of US$97bn.

Didi's valuation (US$ bn)

(5) Didi's valuation implies that Altimeter Growth Corp (AGC US) SPAC is a Buy

Altimeter is expected to complete the reverse takeover of Grab in Q4. We can apply Didi’s EV/Sales valuation to Grab, which is AGC US’s principal asset – it suggests that AGC US is undervalued. Applying Didi's EV/Sales multiple leads to a valuation of US$16.

AGU US: Comparative valuation