ComfortDelGro Corporation - RHB Invest 2016-04-13: Negligible Risks From New Private-Hire Regulations

ComfortDelGro Corporation - RHB Invest 2016-04-13: Negligible Risks From New Private-Hire Regulations COMFORTDELGRO CORPORATION LTD C52.SI 

ComfortDelGro Corporation - Negligible Risks From New Private-Hire Regulations 

  • Maintain BUY on ComfortDelGro (CD) with a DCF-based SGD3.60 TP (28% upside, WACC: 8%, TG: 1%) post the announcement of new regulations for private-hire car drivers and vehicles in Singapore. 
  • We see negligible downside risk to CD’s taxi business, which may continue to grow despite competition from private car hire apps. 
  • We see downside risks only for smaller taxi companies that lack a robust taxi booking infrastructure. 
  • We remain positive about CD’s ability to deliver 30% profit growth in FY16, with a low risk profile in an uncertain economic environment. 

New regulations for private-hire car companies. 

  • Similar to taxi drivers, under new regulations, private-hire car drivers will have to obtain a vocational licence (PDVL). These drivers, subject to medical tests and background screening, have to attend a vocational licence course and be put under a demerit point system. 
  • Private-hire cars used for bookings will also have to be registered with the Land Transport Authority (LTA), and the vehicles will have to display a tamper-evident decal so commuters and authorities can easily identify them. These new regulations have to be complied with by 1H17. 

Is there really a relaxation of eligibility criteria? 

  • Earlier, only Singapore citizens and permanent residents could drive for Uber or GrabCar. 
  • While new regulations permit all residents of Singapore to work as private-hire car drivers, non-citizens can only work as drivers if they are employed by a limousine company. 
  • We think the Government may look to regulate the number of non- Singaporean private hire car drivers by limiting employment permits for them. 

Some relaxation for taxi driver licences too. 

  • The Government has also tweaked the taxi driver’s vocational licensing (TDVL) system by cutting down the course time to 25 hours from 60 hours. 
  • Active taxi drivers with no demerit points will be exempted from refresher courses, while the rest will have to undertake only 3-hour and 5-hour refresher courses every six years vs 6-hour and 9-hour refresher courses earlier. 

Easy conversion from taxi to private car. 

  • Taxi drivers who want to drive for private hire car companies would only need to undergo a 2-hour briefing on regulations for chauffeured services before being granted a PDVL. 
  • We believe the ease of conversion from taxi driver to private hire car driver will negatively impact the smaller taxi companies that are already struggling to retain drivers. 

Limited downside for CD’s taxi business. 

  • We maintain that Uber and GrabCar are addressing demand that CD is unable to fulfil amidst 100% utilisation of its on-street fleet during peak periods. 
  • Despite a rise in the supply of private hire cars, we expect CD to take advantage of low Certificate of Entitlement (COE) prices and grow its taxi fleet by 2% YoY in FY16, which would translate into higher taxi revenue. 
  • CD’s Singapore taxi business accounts for a quarter of its total revenue.

Shekhar Jaiswal RHB Invest | http://www.rhbinvest.com.sg/ 2016-04-13
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