ComfortDelGro - OCBC Investment 2017-08-24: Collaboration Better Than Competition

ComfortDelGro - OCBC Investment 2017-08-24: Collaboration Better Than Competition COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro - Collaboration Better Than Competition

  • May form strategic alliance with Uber.
  • Too early to determine any impact.
  • Maintain BUY.

Entered into exclusive discussions with Uber 

  • ComfortDelGro (CDG) recently announced that it has signed an exclusivity letter with private hire car service provider, Uber Technologies, Inc. (Uber), in relation to forming a potential strategic alliance between CDG and Uber. This potential alliance may include collaboration in relation to management of fleet vehicles and booking software solutions in Singapore, including CDG’s taxis being made available on Uber’s app. 
  • That said, there is no certainty or assurance that such discussions will result in any definitive agreement between the two parties. CDG said it will make appropriate announcement if there is any material development.

Opens up opportunities beyond just booking platform 

  • While details are limited, we believe the potential strategic alliance may create opportunities on two fronts. 
  • First, by joining forces with Uber, CDG will be able to expand its booking reach beyond its own mobile app and call centre, leveraging on Uber’s booking technology. However, the incremental bookings to CDG still depend on the competitiveness of CDG taxi fares compared to the private hire car services (e.g. UberX and GrabCar). One possible outcome could be to emulate the way Grab integrated its partnership with other taxi companies and its own private hire car services via the mobility service function, JustGrab, providing fixed-fare services. 
  • Second, CDG has more experience managing a large vehicle fleet, with its own engineering capabilities to support car servicing. With Uber having a fleet in excess of 15,000 vehicles1 compared to CDG’s fleet of 15,556 taxis (end-Jun 17), this alliance could potentially lift CDG’s engineering business if Uber uses CDG for vehicle maintenance and related services. Note that 1H17 operating profit from automotive engineering services formed 10.1% of CDG’s total operating profit.

Potential synergies positive for CDG 

  • All considered, if this alliance happens, we deem it positive for CDG as we believe it may prove to be a step towards more effective retention of its hirers to reduce taxi fleet idle rate (~5% as at end-2Q17), as well as create new revenue streams for its engineering business. 
  • However, with no concrete details, we keep our forecasts unchanged and maintain BUY on CDG with FV of S$2.70.

Eugene Chua OCBC Investment | http://www.ocbcresearch.com/ 2017-08-24
OCBC Investment SGX Stock Analyst Report BUY Maintain BUY 2.700 Same 2.700