ComfortDelGro (CD SP) - Maybank Kim Eng 2017-12-11: Tying The Knot With Uber

ComfortDelGro (CD SP) - Maybank Kim Eng 2017-12-11: Tying The Knot With Uber COMFORTDELGRO CORPORATION LTD C52.SI

ComfortDelGro (CD SP) - Tying The Knot With Uber


Acquiring 51% of Uber’s car rental subsidiary 

  • ComfortDelGro announced that it is acquiring a 51% stake in Lion City Rental (LCR), a private hire vehicle fleet owner of Uber, for a consideration of SGD295m. This tie-up should be positive as both parties leverage their strengths, mainly the good fleet management of ComfortDelGro and technology-centric ride-booking app of Uber
  • Both parties are finalising additional collaboration opportunities and more details will be given after the necessary regulatory approvals. 
  • Maintain BUY and DCF-based TP of SGD2.40.



Consideration based on net asset value 

  • The total consideration of SGD295m for the 51% stake in Lion City Rental (LCR) is based on the net asset value of SGD642m, determined from the value of 12,450 vehicles. This works out to be approximately 10% discount to net asset value and Comfort has agreed to pay more when the utilisation increases as Uber has a fleet of 14,000 vehicles. This should provide future upside potential for Comfort and prevent losses from the idle fleet of vehicle at the start. 
  • ComfortDelGro should have no issue funding the deal based on its cash balance of SGD538m and net cash position of SGD188m as of 3Q17, supported by FCF of c.SGD400m per year.


Potential financial impact 

  • The key financial measure that needs to be calculated is the level of profitability for Lion City Rental (LCR), which will be determined based on the daily rental rate, utilisation rate, and whether Uber will be subsidising the promotional rental. 
  • Although ComfortDelGro has not provided any potential financial impact of this deal, we note a potential loss of interest income from the SGD295m consideration, assuming a rate of 1% for interest income, which amounts to SGD3m/yr. 
  • In addition, ComfortDelGro should also be taking on additional debt in Lion City Rental (LCR). Interest costs for Comfort could increase by SGD6.7m, assuming SGD266m loan, at 2.5% financing costs, based on LCR’s 2016 financial statement submitted to The Accounting and Corporate Regulatory Authority (ACRA). Both financing items work out to be c.SGD10m of financing expenses. 
  • However, we should be able to provide more colour on the potential earnings contribution when more details of the transaction are disclosed.



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/ 2017-12-11
Maybank Kim Eng SGX Stock Analyst Report BUY Maintain BUY 2.400 Same 2.400



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