ComfortDelGro - DBS Research 2017-08-23: First Take On Comfort’s Tie-up Talks With Uber

ComfortDelGro - DBS Vickers 2017-08-23: First Take On Comfort’s Tie-up Talks With Uber COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - First Take On Comfort’s Tie-up Talks With Uber

  • ComfortDelGro to enter into exclusive discussion with Uber for strategic alliance.
  • Limited details, but our initial take is positive.
  • Competition from Grab still exists.
  • Near-term positive share price reaction likely; no changes to forecasts.


What’s New 


Exclusive discussion to forming strategic alliance with Uber.

  • ComfortDelGro (CD) announced that it has signed an exclusivity letter with Uber Technologies, Inc. for exclusive discussion to forming a potential strategic alliance.
  • According to CD’s announcement, the alliance may include “collaboration in relation to management of fleet vehicles and booking software solutions in Singapore”. It may also include making CD’s taxis available on Uber’s app.
  • ComfortDelGro has 15,556 taxis (as of June 2017), out of a total taxi population of 25,699. According to media reports, Uber is said to have a fleet of over 15,000 (under its car rental company, Lion City Rentals). Total private hire chauffeur-driven cars are said to number over 42,000. Based on the figures, that would put Comfort+Uber fleet at around 45% of total combined taxi and private hire car fleet. The figure excludes private hire car drivers who may be driving under the Uber platform but using vehicles from other sources (i.e. other rental cars, drivers’ own vehicles).


Our views: 


Alliance better than competition – some potential positives.

  • There is a dearth of details. That said, on the operational side, our take is that the alliance should point to more collaboration between the two parties and leverage on each other’s positive aspects. 
  • From Uber’s perspective, this could be expanding its platform to include taxis with a leading market player. 
  • For CD, the fleet management could provide opportunities for its engineering services, coupled with increased bookings for its taxi drivers through the Uber platform.

Evolving into tag team landscape – Uber+Comfort vs Grab+Others? 

  • Although the potential alliance has positive benefits, we are also cognisant that competition may not cede completely as Singapore is still likely to be a key market for Grab as well. 
  • In our view, Grab has also been very progressive in its offering with the combination of all services under JustGrab, and was recently said to have raised an additional US$2.5bn in funding.

Timeline not known, though not surprised if developments could move fast. 

  • As per other details, there was no timeline shared. But we will not be surprised to see some fruition and further details in the coming months given the rapid developments in this space and urgency to the market.

No implications on our forecasts as yet. 

  • In our latest note on 14 August 2017 (ComfortDelgro: 2Q17 drop in profit was expected), we are assuming CD’s average taxi fleet to contract by 7%/ 3% in FY17F/18F and stabilise at about 15,000 by FY19F. Our assumption does not change at this juncture.


Initial take: Vague but seems a positive move. 

  • Overall, despite a lack of details, we think this development is positive for CD and could work in favour of its share price.
  • This move could also signal to the market that CD’s management is acting on market changes, and are looking for ways to counter the challenges.
  • ComfortDelGro's share price has retreated by 23% and 12% from 12 months and YTD respectively, on market concerns of its taxi fleet performance due to competition from private car hire players. This news could help lessen the effect.




Andy SIM CFA DBS Vickers | http://www.dbsvickers.com/ 2017-08-23
DBS Vickers SGX Stock Analyst Report HOLD Maintain HOLD 2.330 Same 2.330



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