ComfortDelGro (CD SP) - Maybank Kim Eng 2017-08-24: Potential Tie-up With Uber

ComfortDelGro (CD SP) - Maybank Kim Eng 2017-08-24: Potential Tie-up With Uber COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Potential Tie-up With Uber


Exclusive strategic alliance discussions with Uber 

  • Comfort announced that it is in exclusive discussions with Uber to form a potential strategic alliance on:
    1. the management of Uber's fleet of vehicles; and
    2. booking software solutions in Singapore, including Comfort’s taxis. 
  • We expect some developments by end-2017; two positive scenarios include:
    1. Comfort getting the private car rental business and being allowed to charge a profitable rate; and
    2. surge pricing service for Comfort on Uber’s platform, which could level the playing field with competitors. 
  • Maintain HOLD and TP of SGD2.25, based on 16x (long-term mean) FY17E EPS.


Private rental car business 

  • For the management of Uber’s vehicles, repair and maintenance are the low hanging fruits but these will not contribute much. The positive scenario will be if Comfort secures the car rental business and is allowed to charge a profitable rate. 
  • Currently, Uber owns the Lion City Rental, which provides car rental services to its drivers. There is no public data on the fleet size of Lion City Rental but The Straits Times reported that private hire companies, such as Uber, Grab, Ethoz Cab and the others own around 30,000 vehicles.


Leveraging on Uber’s platform 

  • The positive scenario is the surge pricing service for Comfort, where it adjusts fares based on the supply and demand. This is a competitive edge for the private hires, due to more competitive pricing compared to taxis most of the time. 
  • To recap, Grab (a private car hire operator) made its surge pricing service exclusive for all Singapore taxis in Mar 2017, except for Comfort. Comfort reacted shortly after with a fixed fare scheme. 
  • The key earnings contributor for Comfort’s taxi business is rental income (utilisation rate x fleet size) and the tie up could potentially help to improve its utilisation rate. Booking revenue and the cashless transaction revenue are just small contributors. 
  • Also, Uber could be sharing the booking revenue of Comfort’s Taxi booked under its platform. In the past, some Comfort drivers used Grab’s platform for bookings. Grab claims that it has a 95% market share in 3rd party taxi hailing in ASEAN.


Swing Factors


Upside

  • Better-than-expected bus profitability.
  • Successful bids for new rail lines in Singapore.
  • Value-enhancing acquisitions of overseas business.

Downside

  • Decline in taxi utilisation or rental rates.
  • Overpaying for acquisitions.
  • Higher labour and energy costs.




John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2017-08-24
Maybank Kim Eng SGX Stock Analyst Report HOLD Maintain HOLD 2.250 Same 2.250



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