ComfortDelGro - CIMB Research 2017-08-23: If You Can’t Beat Them, Join Them

ComfortDelGro - CIMB Research 2017-08-23: If You Can’t Beat Them, Join Them COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - If You Can’t Beat Them, Join Them

  • We expect mild positive sentiment from the discussion of a potential collaboration between ComfortDelgro and Uber to support ComfortDelGro’s share price in the short-term.
  • However, as details are still scant on the collaboration, we leave our EPS and recommendation intact for now.
  • Maintain Hold and target price of S$2.46, still based on DCF valuations (WACC: 7.0%, LTG: 1%).

If you can’t beat them, join them

  • ComfortDelGro (CD) has signed an exclusive letter with Uber Technologies (Uber) for exclusive discussions to form a potential strategic alliance among the two taxi operators.
  • The collaboration may include
    1. management of fleet vehicles and
    2. booking software solutions in Singapore, including CD’s taxis being made available on Uber’s app. 
  • CD believes that the potential collaboration will strengthen its position as a major mobility service provider in Singapore.
  • However, the press release had a caveat that “there is no assurance that such discussions will result in any definitive agreement or transaction or lead to a consummation of the potential strategic alliance.” 

Will having CD’s taxis in the Uber app help?

  • From CD’s standpoint, we believe that this is a constructive move to stem its taxi fleet idling rate which increased to 5% in 2Q17 vs. 3% in 1Q17. It is also a preemptive move to discourage the departure of drivers for private hire.
  • From Uber's standpoint, it would be a move to gain access to a large fleet of vehicles (CD held 59.9% market share of Singapore’s taxi fleet in May 17) without the need for further funding/subsidies. This could also mean that it will need to continue attracting passengers, especially since its reputation may have been affected by the recent defective car scandal.
  • We maintain our forecasts and await further updates from the company. The success of this move should be mildly positive.

Maintain Hold and target price of S$2.46

  • Pending the success of this collaboration, taxi profit continues to shrink and we keep to our view that the competition landscape is still stiff, as taxis and private cars co-exist in Singapore.
  • Upside risks include possible earnings-accretive M&As and higher dividends.
  • Downside risks include further deterioration in taxi and public transport profits.

Cezzane SEE CIMB Research | LIM Siew Khee CIMB Research | http://research.itradecimb.com/ 2017-08-23
CIMB Research SGX Stock Analyst Report HOLD Maintain HOLD 2.460 Same 2.460